Calculate the profit margin and the gross profit rate for each company. (Round answers to 1 decimal place, e. g. 15.5%.) Ivanhoe Company Pharoah Company Profit margin enter percentages rounded to 1 decimal place % enter percentages rounded to 1 decimal place % Gross profit rate enter percentages rounded to 1 decimal place % enter percentages rounded to 1 decimal place %

The profit margin is the percentage of profit made from sales less all expenses. The higher the profit margin, the better.  

Profit margin = (net profit after tax / net sales) * 100

e.g                   = (93 000 / 250 000) * 100

                       = 37.2%

The gross profit margin is the percentage of profit made from sales less cost of sales. The higher the gross profit margin, the better.  

Gross profit margin = (gross profit / net sales) * 100

e.g                       = (129 000 / 250 000) * 100

                            = 51.6%

Since no figures are given, the above examples are given to demonstrate how we compute the margins.  

Oriole Company:

net profit margin = 16%

gross profit rate = 28.6%

Ivanhoe Company:

net profit margin = 13%

gross profit rate = 30.7%

Explanation:

Oriole Company and Ivanhoe Company

Below is the complete question:

•Oriole Company:

Sales revenue = $ 90, 800

Sales returns and allowances = $ 10, 800

Net sales = $ 80, 000

Cost of goods sold = $ 54, 000

Gross Profit = $ 26, 000

Operating expenses = $ 14, 520

Net income = $ 11, 480

•Ivanhoe Company:

Sales revenue = $ 140, 000

Sales returns and allowances = $ 5, 000

Net sales = $ 135, 000

Cost of goods sold = $ 92, 000

Gross Profit = $ 43, 000

Operating expenses = $ 24, 800

Net income = $ 18, 200

Answers:

Profit margin: the amount by which revenue exceeds costs.

Profit margin is composed mainly of Gross profit margin and net profit margin.

Gross Profit margin is used to show how much money is left from sales after deducting cost of goods sold.

Net profit margin is the percentage of revenue that remains after all operating expenses and taxes.

Gross profit rate is the gross profit divided by the sales.

Oriole Company:

Net profit = Net income / Sales revenue

= $ 14, 520 / $ 90, 800

= 16%

Gross profit rate = gross profit / sales revenue

= $ 26, 000 / $ 90, 800  

= 28.6%

Ivanhoe Company:

Net profit = Net income / Sales revenue

= $ 18, 200 / $ 140, 000

= 13%

Gross profit rate = gross profit / sales revenue

= $ 43, 000 / $ 140, 000  

= 30.7%

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