Question

The following information was drawn from the annual reports of two companies. Company A Company B Sales revenue $ 1,000 $ 2,000 Cost of goods sold (600 ) (1,100 ) Gross margin 400 900 Operating expenses (220 ) (700 ) Operating income 180 200 Gain on sale of equipment 150 0 Net income $ 330 $ 200 Based on this information, Company B’s return on sales is___________.

a. 60%.b. 55%.c. 45%.d. 40%.

Answer 1

c.45%

Step-by-step explanation:

The Formula for return on sales=Operating profit/Net Sales

Sales=$2,000

Less:

Cost of Goods Sold $ (1,100)

Operating profit $900

Return on sales=$900/$2,000=45%

It should be noted that in many cases to reach out on operating profit, the operating expense are also deducted from operating profit for the sake of this formula. In that scenario the correct answer would have been 10% return on sales i.e $900-$700=$200/$2,000=10%

As the 10% option is missing in MCQ, therefore 45% is selected