Question

A venture has net sales of $400,000, cost of goods sold of $200,000, operating expenses (selling, general, and administrative) of $100,000, and interest expenses of $50,000. What is the operating profit margin?

Answer 1

Given:

Net sales = $400000

Cost of goods sold = $200,000

Operating expenses = $100,000

Interest expenses = $50,000

To find:

The operating profit margin

Solution:

To calculate the operating profit margin, first we have to find the operating profit.

Subtract your total operating expenses from gross profit to calculate operating profit.

That is,
`\text{Operating profit}=\text{Sales (Revenue) - Cost of goods sold - Operating expenses}`
`\Rightarrow \$400000-\$200000-\$100000=\$100000`

Divide operating profit by gross revenue to calculate operating profit margin.

`\text{Operating profit margin} = \frac{\text{Operating profit}}{\text{Gross Revenue}}*100`

`\Rightarrow(100000)/(400000)*100=25\%`

Therefore, the Operating profit margin is 25%.