Question

Calculate the Gross Profit Margin using the information provided. What is the GPM for Apple? (7.5 pts) What is the GPM for Microsoft? (7.5 pts) Which company has the higher GPM? (5pts) Does higher sales guarantee greater profits? (5 pts)

In 2014, Apple reported profits of more than $50 billion on sales of $182 billion. For that same period, Microsoft posted a profit of almost $30 billion on sales of $88 billion. So Apple is a better marketer, right? Sales and profits provide information to compare the profitability of these two competitors, but between these numbers is information regarding the efficiency of marketing efforts in creating those sales and profits. Appendix 2, Marketing by the Numbers, discusses other marketing profitability measures beyond the return on marketing investment (marketing ROI) measure described in this chapter. Review the Appendix to answer the questions using the following information from the two companies’ incomes statements (all numbers are in thousands):

	Apple	Microsoft
Sales	$182,795,000	$86,833,000
Gross Profit	$ 70,537,000	$59,899,000
Marketing Expenses	$    8,994,750	$15,474,000
Net Income (Profit)	$ 52,503,000	$27,759,000

Answer 1

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In the question, We have to calculate Gross Profit margin of Apple and Microsoft both.

Before that

Let's look at the formula of Gross Profit Margin

Gross Profit Margin = Gross Profit / Sales

1.

Apple Gross Profit Margin = $70,537,000 / $182,795,000

Apple Gross Profit Margin = 0.38588 or 38.59%

2.

Microsoft Gross Profit Margin = $59,899,000 / $86,833,000

Microsoft Gross Profit Margin = 0.6898 or 68.98%

3.

We can clearly see that Gross Profit Margin of Microsoft is much higher than Apple. Apple Gross Profit Margin is 38.59% whereas Microsoft Gross Profit is 68.98%.

4.

Higher Sales guarantee higher profits till the marketing and selling costs of increasing the sales do not exceed a certain limit, if selling and other indirect costs became much higher than the gross profit margin then it will decrease profit and not increase profit.

Based on the above, we can say that Higher sales do not guarantee higher profits. because for increasing the sales company has to incur extra costs on marketing which will exceed after a certain limit and the excess cost is much more than the profit earned by the product.