Local Co. has sales of $10.9 million and cost of sales of $5.9 million. It's selling, general and administrative expenses are $510,000
and its research and development is $11million. It has annual depreciation charges of $1.3 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?
a) local co. has
Sales = $10.9 million
Cost of goods sold = $5.9million
We have to calculate gross margin . For gross margin , we need gross profit
So, Gross profit = sales - cost of goods sold
= $10,900,000 - $5,900,000
= $5,000,000
Now, Gross margin = Gross profit/ sales
=$5,000,000/ $10,900,000
= 0.4587 or 45.87%
b) Now we have to calculate operating margin
For that , we need operating profit
Operating profit = Gross profit - selling, general and administration expenses - research and development - depreciation
=$5,000,000- $510,000-$1,100,000- $1,300,000
= $2,090,000
According to me , research and Development expenses given above should be $1.1 million instead of $11 million otherwise there will be no profit , only loss.
That is why i have taken research and development expenses as $1.1 million
Operating margin = operating profit / sales
= $2,090,000/$10,900,000
= 0.1917 or 19.17%
c) net profit margin :-
Now we will calculate net profit
Net profit = operating profit - tax
= $2,090,000 - 0.35 ($2,090,000)
= $1,358,500
Net profit margin = net profit / sales
= $1,358500/ $10,900,000
=0.1246 or 12.46%
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Partial Trial Balance Data
Debits
Credits
Sales revenue
715,000
Interest revenue
61,000
Gain on sale of investments
111,000
Cost of goods sold
510,000
Selling expenses
149,000
Interest expense
31,000
General and administrative expenses
102,000
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Income tax expense has not yet been accrued. The effective tax rate
is 30%.
Required:
Prepare a multiple-step income statement with earnings per share
disclosure. (Amounts to be deducted should be indicated
with...
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