Question

ACME Transmission Inc. supplies transmissions to Ford for their popular Model T.​ ACME's main product is the Turbo Encabulator which is based on​ magneto-reluctance rather than on the traditional Sperbing bearing. Automobile sales fell significantly during the great depression. ​ Now, at the beginning of​ 1934, GDP is growing again and Ford is forecasting an increase in automobile sales of 3% over the coming year. You want to forecast​ ACME's operating profit margin​ (EBIT/Sales) for the coming year. Use the data in the table to estimate​ ACME's operating profit margin for 1934.

Selected Financial Information ACME Transmission Inc.

	Copy to Clipboard			+
	Open in Excel			+

1933​ (Actual)

1934​ (Forecast)

Sales

​$1 comma 5861,586

​$1 comma 6341,634

EBIT

​$5151

Operating Profit Margin

3.223.22​%

Operating Leverage

1.911.91

What is ACME's estimated operating margin for 1934?

Answer 1

ACME Estimated Operating Profit margin

Particulars	1933 ( Actual)	1934 (Estimated)	Difference	Percentage
Sales (a)	5861586	6341,634	480,048	8.2 % increase
EBIT (b)	5151	5563		* 8.2 % increase (assumed)
Operating Profit Margin (a/b)	.088 %	.088 %

* Assuming Increase in sales will have an equivalent impact on EBIT , same percentage of sales growth is used.

Also thus there is no change in the Operating Profit margin of the Company

But Considering Other Financial and Non Financial Factors the percentage growth can be increased by 1.5 % based on judgement considering the organisation will grow.

Thus, Operating Profit margin will be .088 * 1.015 = .08932 %