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. Baxter Bros. is a manufacturing company that has two major divisions. Both divisions have required a significant investment
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Answer #1

Division A:

Operating Income = Sales - Expenses
Operating Income = $30,000 - $25,000
Operating Income = $5,000

Profit Margin = Operating Income / Sales
Profit Margin = $5,000 / $30,000
Profit Margin = 0.1667 or 16.67%

Division B:

Operating Income = Sales - Expenses
Operating Income = $30,000 - $25,000
Operating Income = $5,000

Profit Margin = Operating Income / Sales
Profit Margin = $5,000 / $40,000
Profit Margin = 0.1250 or 12.50%

Profit margin of Division A is higher than that of Division B. So, Division A is generating greater profitability per sales dollar.

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