The following data are available for a firm for a given year:
Net Sales 21,896 -
Sales & marketing expenses 4,346
Administrative expenses 2,143 -
COGS 10,084 -
Depreciation 967 -
Interest expense 573 -
Tax rate 35%
Dividends paid 3,445 -
Preferred Dividends 897 -
Average total equity 37,432 -
Average common equity 26,782 -
Average total liabilities 18,583
The firm's gross profit margin equals ________.
Click on the arrows to vote for the correct answer
A. B. C. D.D
Gross Profit = 21,896 - 10,084 = 11,812 and
Gross Profit margin = 11,812/21,896 = 0.54 = 54%.
To calculate the firm's gross profit margin, we need to know its gross profit. Gross profit is calculated by subtracting the cost of goods sold (COGS) from net sales. However, the data provided does not directly give us the COGS. We can use the formula:
Gross Profit = Net Sales - COGS
Let's substitute the given values into the formula: Gross Profit = 21,896 - COGS
Next, we need to calculate the COGS. The COGS is not directly provided but can be calculated using the formula:
COGS = Net Sales - Gross Profit
We can substitute the values into the formula: COGS = 21,896 - Gross Profit
Now let's use the information provided to calculate the COGS. We are given the following expenses:
Sales & marketing expenses = 4,346 Administrative expenses = 2,143 Depreciation = 967 Interest expense = 573
Since the data does not explicitly state that these expenses are part of the COGS, we can assume they are not included in the COGS calculation. Therefore, we subtract these expenses from the net sales to calculate the COGS:
COGS = Net Sales - (Sales & marketing expenses + Administrative expenses + Depreciation + Interest expense) COGS = 21,896 - (4,346 + 2,143 + 967 + 573) COGS = 21,896 - 8,029 COGS = 13,867
Now that we have the COGS, we can calculate the gross profit:
Gross Profit = Net Sales - COGS Gross Profit = 21,896 - 13,867 Gross Profit = 8,029
To calculate the gross profit margin, we divide the gross profit by the net sales:
Gross Profit Margin = Gross Profit / Net Sales Gross Profit Margin = 8,029 / 21,896
Using a calculator, we find that the gross profit margin is approximately 0.3667. However, the closest answer choice in the given options is 0.39 (B), which is the closest approximation.