Final answer:
The profit margin for the sports shack is calculated by dividing the net income by the sales and then multiplying by 100 to get a percentage. The calculation shows that the profit margin is 10%, so the correct answer is option 4) 10%.
Step-by-step explanation:
The student is asking about the calculation of the profit margin for a business named the sports shack. The profit margin is calculated by dividing the net income by the sales, and then multiplying by 100 to get a percentage. Here, the profit margin is calculated as follows:
Profit Margin = (Net Income / Sales) × 100
= ($120,000 / $1,200,000) × 100
= 0.10 × 100
= 10%
Hence, the correct answer to the question is option 4) 10%.
Self-Check Question Example
If a firm had sales revenue of $1 million last year and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, the firm's accounting profit would be calculated by subtracting the costs from the sales revenue:
Accounting Profit = Sales Revenue - (Labor Costs + Capital Costs + Material Costs)
= $1,000,000 - ($600,000 + $150,000 + $200,000)
= $1,000,000 - $950,000
= $50,000