Use the following information for questions 64 through 69.
The following data are provided: Additional information:
Depreciation included in cost of goods sold and operating expenses is $610,000. On May 1, 2015, 30,000 shares of common stock were issued. The preferred stock is cumulative. The preferred dividends were not declared during 2015.
-The profit margin on sales for 2015 is
A) 2,200 ÷ 6,400.
B) 750 ÷ 6,400.
C) 2,200 ÷ 4,200.
D) 750 ÷ 4,200.

Question

Use the following information for questions 64 through 69.
The following data are provided:  Additional information:
Depreciation included in cost of goods sold and operating expenses is $610,000. On May 1, 2015, 30,000 shares of common stock were issued. The preferred stock is cumulative. The preferred dividends were not declared during 2015.
-The profit margin on sales for 2015 is
A) 2,200 ÷ 6,400. 
B) 750 ÷ 6,400. 
C) 2,200 ÷ 4,200. 
D) 750 ÷ 4,200.

Quizplus · Accepted Answer

The profit margin on sales for 2015 can be calculated as follows:
Net income = Gross profit - Operating expenses - Depreciation expense
Net income = $750,000 - $2,540,000 - $610,000
Net income = -$400,000 (Note: Negative net income means a loss)
Sales = Gross sales - Sales returns and allowances
Sales = $6,400,000 - $200,000
Sales = $6,200,000
Profit margin on sales = (Net income ÷ Sales) × 100%
Profit margin on sales = (-$400,000 ÷ $6,200,000) × 100%
Profit margin on sales = -6.45%
Therefore, the closest option to the calculated profit margin is B) 750 ÷ 6,400.

Use the Following Information for Questions 64 Through 69