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Homework answers / question archive / Local Co has sales of $10
Local Co has sales of $10.8 milion and cost of saios of 85.8 million to seling, peneral and administrave expenses are $180,000 and hand developedia 1.9 milion thus annual depreciation charge of $1.1 million and a tax rate of 35% What is Local's grob margin? b. What is Local's operating margin? c. What is Locals net profit margin a. Local Co, hind a crease in selling expenses of $320,000, how would that led each of its margina? af Local Co had interest mpense of $830,000, how would that affect each of its marins a. What is Local's gross margin? Locals gross margini (Round to one decimal place) b. What Is Lots operating margin? Locals corting marginis 0% (Round tons de malplice c. What Is Local's net profit margin Locul net profit margin is 1% (Round to two decimal plus
d. Local Co. had an increase in selling experises of $320,000, how would that affect each of its margins? (Select the best choice below. O A. Selling expenses do not affect the gross margin, but the increase in such expenses will decrease the other margins. OB. Selling expenses only affect the gross margin, but the increase in such expenses will not affect the other margins, OC. Selling expenses only affect the net profit margin, but the increase in such expenses will not affect the other margins. OD. Selling expenses only affect the operating margin, but the increase in such expenses will not affect the other margins. e. If Local Co. had interest expense of $830,000, how would that affect each of its margins? (Select the best choice below.) OA. Both the gross and operating margins will be affected, but the net profit margin will be unaffected. OB. Only the operating margin accounts for interest expense, so both the gross and profit margins will be unaffected OC. Only the net profit margin accounts for interest expense, so both the gross and operating margins will be unaffected OD. Only the gross margin accounts for interest expense, so both the net profit and operating margins will be unaffected Click to select your answer(s)
a) Statement showing gross margin
| Particulars | Amount |
| Sales | 10800000 |
| Less: Cost of sales | 5800000 |
| Gross profit | 5000000 |
| Gross Margin in % (5000000/10800000) |
46.3% |
b) Statement showing Operating margin
| Particulars | Amount |
| Gross profit | 5000000 |
| Less : Selling , general and administrative expenses | 490000 |
| Less: research and development expense | 1200000 |
| Less: Annual depreciation expense | 1100000 |
| Operating profit | 2210000 |
| Operating margin (2210000/10800000) |
20.5% |
c) Statement showing Net profit margin
| Particulars | Amount |
| Operating profit | 2210000 |
| Less: Tax @ 35% | 773500 |
| PAT | 1436500 |
| Net profit margin (1436500/10800000) |
13.3% |
d) Ans) A. Selling expenses do not affect the gross margin but increase in such expense will decrease other margins
Selling expenses do not form part of cost of goods sold and hence will not affect gross margin
e) Ans) C. Only the net profit margin accounts for interest expense, so both gross margin and operating margins will be unaffected
