Final answer:
The operating margin of a business with net sales of $5,000,000 and operating income of $500,000 is 10%. This is determined by dividing the operating income by the net sales and converting it into a percentage.
Step-by-step explanation:
To calculate the operating margin, you must divide the operating income by net sales and then multiply by 100 to get a percentage. In this case, if a business generates net sales of $5,000,000 and an operating income of $500,000, the formula for the operating margin would be ($500,000 / $5,000,000) * 100, which equals 10%. Therefore, the operating margin for the business is 10%.
Example for Self-Check Questions
Based on the given example in Chapter 7, the accounting profit is calculated by subtracting the explicit costs from the total revenues. The firm had sales revenue of $1 million and expenses that include $600,000 on labor, $150,000 on capital, and $200,000 on materials. Therefore, the accounting profit is calculated as follows:
Accounting profit = $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000.