What is a difference between the profit margin and the gross profit rate?
A)None, these are interchangeable terms.
B)The gross profit rate is computed by dividing net sales by gross profit and the profit margin is computed by dividing net sales by net income.
C)The gross profit rate will normally be higher than the profit margin ratio.
D)A profit margin of 7% means that 7 cents of each net sales dollar ends up in net income and a gross profit rate of 7% means that the cost of the goods were 7% of the selling price.

Question

Quizplus · Accepted Answer

The gross profit rate is calculated as gross profit divided by net sales, while the profit margin is calculated as net income divided by net sales. Since gross profit is typically higher than net income, the gross profit rate is usually higher than the profit margin.

What Is a Difference Between the Profit Margin and the Gross