Question

Luther Corporation

Consolidated Income Statement
Year ended December 31​ (in $millions)
2006 2005
Total sales 610.1 578.8
Cost of sales ​ (500.2) ​(355.3)
Gross profit 109.9 223.5
​Selling, general, and
administrative expenses ​ (40.5) ​(38.7​)
Research and development ​(24.6) (21.8​)
Depreciation and amortization ​(3.6) (3.9​)
Operating income 41.2 159.1
Other income −− −−
Earnings before interest and taxes​ (EBIT) 41.2 159.1
Interest income​ (expense) ​(25.1) ​(15.3​)
Pretax income 16.1 143.8
Taxes ​(5.5) (50.33​)
Net income 10.6 93.47
Price per share $16 $15
Sharing outstanding​ (millions) 10.2 8.0
Stock options outstanding​ (millions) 0.3 0.2
​Stockholders' Equity 126.6 63.6
Total Liabilities and​ Stockholders' Equity 533.1 386.7
Refer to the income statement above. ​ Luther's operating margin for the year ending December​ 31, 2005 is closest​ to:_________.
A. 13.7413.74​%
B. 21.9921.99​%
C. 27.4927.49​%
D. 32.9932.99​%

Answer 1

Luther Corporation's operating margin for the year ending December 31, 2005, is calculated by dividing the Operating Income by Total Sales for that year. After the calculation, the operating margin for 2005 is 27.49%, which corresponds with option C.

Step-by-step explanation:

To calculate Luther Corporation's operating margin for the year ending December 31, 2005, we need to divide the Operating Income by the Total Sales for that year, and then multiply by 100 to get the percentage. The Operating Income for 2005 was 159.1 million dollars and the Total Sales were 578.8 million dollars.

The formula for operating margin is:

Operating Margin = (Operating Income / Total Sales) × 100

Now let's calculate it:

Operating Margin = (159.1 / 578.8) × 100

Operating Margin = 0.2748495 × 100

Operating Margin = 27.49%

The closest answer is 27.49%, which is option C.

Answer 2

27.48%

Step-by-step explanation:

Calculation for Luther's operating margin for the year ending December​ 31, 2005

Using this formula

Operating margin = Operating income / Sales

Let plug in the formula

Operating margin= 159.1/578.8

Operating margin=0.2748*100

Operating margin=27.48%

Therefore Luther's operating margin for the year ending December​ 31, 2005 is 27.48%