Question

Low Carb Diet Supplement Inc. has two divisions. Division A has a profit of $306,000 on sales of $2,410,000. Division B is able to make only $28,700 on sales of $354,000.

a. Compute the profit margins (return on sales) for each division. (Input your answers as a percent rounded to 2 decimal places.)

b. Based on the profit margins (returns on sales), which division is superior?
  

• Division B

• Division A

Answer 1

a)

Division A:

Profit margin = (Net income / sales) * 100

Profit margin = (306,000 / 2,410,000) * 100

Profit margin = 12.70%

Division B:

Profit margin = (Net income / sales) * 100

Profit margin = (28,700 / 354,000) * 100

Profit margin = 8.11%

b)

Division A as it has the higher profit margin