Q: Based on the income statement for Peachtree Construction shown below, what is the ratio of operating profit to completed contract sales. Is this ratio acceptable? Explain.
Homework Answers
operating profit to completed sales contract ratio is operating margin only
however completed contract sales method considers all income and expenses related to the long term contract which can be days, months or years.
here the data given is 100% sales completed
the formula to compute the ratio is operating profit / sales*100
operating profit is gross profit - operating expenses
(328329 -162857) = 165472
sales = 2143761
operating margin = 165472 / 2143761 * 100 = 7.718%
this is not a very good ratio and should be improved either by increasing sales or by reducing operating expenses
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