Local co. has sales of $ 10.6 million and cost of sales of $ 5.6 million. its selling, general and administrative expenses are $ 550 comma 000 and its research and development is $ 1.1 million. it has annual depreciation charges of $ 1.3 million and a tax rate of 35 %.

a. what is local's gross margin?

b. what is local's operating margin?

c. what is local's net profit margin?

a. what is local's gross margin? local's gross margin is nothing %. (round to one decimal place.)

Given: Sales/Revenue = $10.6 million

Cost of goods sold = $5.6 million

General and administrative expenses = $550,000

Research and development expenses = $1.1 million

Annual depreciation = $1.3 million

Tax rate = 35%

Find: gross margin, operating margin and net profit margin

Solutions:

a) The Gross Margin is 47.2%

Gross Margin = (Revenue - Cost of Goods Sold) / Revenue

$10.6 million - $ 5.6 million = $5,000,000

$5,000,000/$10,600,000 = 0.4716 or 47.2%

b) The Operating Profit Margin is 72.2%

Operating Profit Margin = Operating Income / Sales Revenue

*Get first the total amount of operating income

Operating income = Gross Profit - General and Administrative Expenses - Research and Development - Depreciation

Operating income = $10,600,000 - $550,000 - $1,100,000 - $1,300,000

Operating income = $7,650,000

*Then get the operating margin

Operating margin = $7,650,000 / $10,600,000

Operating margin = 0.7216 or 72.2%

c) The net profit margin is 46.9%

Net Profit Margin = Net Income / Total Revenues

*Get first the total amount of Net Income

Net Income = Total Revenues - Total Expenses

Net Income = $10,600,000 - $550,000 - $1,100,000 - $1,300,000 x (1-0.35)

Net Income = $7,650,000 x (1-0.35)

Net Income = $4,972,500

*Then get the Net Profit Margin

Net Profit Margin = $4,972,500/$10,600,000

Net Profit Margin = 0.4691 or 46.9%