Question

Local Co. has sales of $ 10.7 million and cost of sales of $ 6.2 million. Its​ selling, general and administrative expenses are  $ 460 comma 000 and its research and development is $ 1.4 million. It has annual depreciation charges of $ 1.2 million and a tax rate of 35 %. a. What is​ Local's gross​ margin? b. What is​ Local's operating​ margin? c. What is​ Local's net profit​ margin?

Answer 1

Sales	10,700,000
Less:Cost of sales	6,200,000
Gross profit	4,500,000
Less:Selling,general and administrative expense	460,000
Less:research and development expense	1,400,000
Less:depreciation	1,200,000
Operating profit	1,440,000
Less:tax(1,440,000*35%)	504000
Net income	$936000

Gross margin=Gross profit/Sales

=(4,500,000/10,700,000)=42.06%(Approx).

Operating margin=Operating profit/Sales

=(1,440,000/10,700,000)=13.46%(Approx).

Net margin=Net income/Sales

=(936000/10,700,000)=8.75%(Approx).