Question

Basic Problems 1.)Low Carb Diet Supplement Inc. has two divisions. Division A has a profit of $156,000 on sales of $2,010,000. Division B is only able to make $28,800 on sales of $329,000. Based on the profit margins (returns on sales), which division is superior?

Answer 1

Profit Margin (Return on sales) for Division-A

Profit Margin (Return on sales) for Division-A = [Net Profit / Sales] x 100

= [$156,000 / $2,010,000] x 100

= 7.76%

Profit Margin (Return on sales) for Division-B

Profit Margin (Return on sales) for Division-B = [Net Profit / Sales] x 100

= [$28,800 / $329,000] x 100

= 8.75%

DECISION

Here, the Profit margin for Division-B (8.75%) is higher than the Profit margin for Division-A (7.76%), therefore, the Division-B is more superior than Division-A.