Explore BrainMass

Profit Margin

In a general sense, accounting profits are the difference between revenues and expenses. Profit margins are calculated by dividing profits by total operating revenue (the revenue we collect directly from sales). We exclude revenues from other sources because what we are really interested is the repeatable earnings from ongoing day-to-day, profit-seeking business activities.

The two most common profit margins calculated are the gross profit margin and the net profit margin. The gross profit is found by subtracting the cost of goods sold from total operating revenue (or sales). The gross profit margin is therefore the gross profit divided by total operating revenue.

The net profit or net income is found after subtracting all other operating expenses, interest and taxes from the gross profit. The net profit margin is therefore the net operating income divided by the total operating revenue.

For example, imagine the following accounting numbers for ABC Co. 

Sales Revenue (Total Operating Revenue)


Less: Cost of Goods Sold


Gross Profit


Less: Overhead


Less: Taxes


Net Profit (Net Operating Income)



Gross profit margin = $2,500/$10,000 = 25%

Net profit margin = $650/$10,000 = 6.5%

Profit margins are not direct measures of profitability because they are based on operating revenue, opposed to the value of the firm. However, it gives us a sense of how well a firm is able to produce or sell products and services at a lower cost or a higher price. Profit margins vary between industries, with service industries typically having a high profit margin, and manufacturing industries with lower ones.  

Investing in Disney

In 500 words, identify 5 significant points that you would consider when looking to invest in Disney. Support each point with a comprehensive explanation incorporating sound reasoning of current figures from the 2015, 2014, and 2013 Annual Reports.

Determining Profit via Contribution Margin & Bottleneck Methods

Canine Kernels Company (CKC) manufactures two different types of dog chew toys (A and B, sold in 1,000-count boxes) that are manufactured and assembled on three different workstations (W, X, and Y) using a small-batch process (see figure 7.9). Batch setup times are negligible. The flowchart denotes the path each product follows

Contribution Margin and Anticipated Profit

Innovators Inc. produces two products, A and B, with the following characteristics: Product A Product B Selling price per unit $10 $15 Variable cost per unit $ 8 $10 Expected sales (units) 10,000 5,000 Total fixed costs for the company are $21,000. A. What is the anticipated profit given the expected sales volume ?

Using ABC to Improve Product Pricing and Gross Profit Margin

[Data attached.] Drilling Innovations, Inc., produces specialized cutting heads used by companies that drill for oil and natural gas. The company has recently implemented an ABC system for three of its products and is interested in evaluating its effectiveness before converting to an ABC system for all products. To perform th

MediaSol Inc. Cost Volume Profit , break even, effect on operating profit

Please complete questions in attachment. MediaSol Inc. Produces affordable, high quality personal mulitmedia entertainment devices. The company's Video Division manufactures three portable video players - the Stnadard, the Deluxe, and the Pro-that are widely used by the younger generation. Selected information on the portab

Prepare a monthly income statement for Larimer Industries at a sales volume of 10,000 units, using the contribution format. Also calculate the breakeven level of sales (units per month), incremental profit and discuss transfer pricing.

2. Larimer Industries is a division of Widgetco, a diversified manufacturer whose divisions are profit centers. Larimer makes a single product, X47, in its plant, which has a capacity of 18,000 units/month. At the normal volume of 10,000 units/month, X47 has a unit cost of $750, consisting of: direct materials, $260; direct l

Contribution margin is used as the basic building block of Cost, Volume, Profit analysis. This process has its limitations, but offers a powerful snapshot of how best to set production levels with respect to variable costs.

Value costing remains an important aspect of strategic business decisions. It allows decision-makers a rapid snapshot of optimal output levels with respect to variable costs, price-point, and profitability. While CVP makes several assumptions that limit its application to specifics, it remains an important part of accounting for

Profit Margin Calculations for Sales Walehouses

Please set-up the following questions, which include the answers, on an "Excel" template. 18. A jewellery store purchased a diamond rig for $2500 less 40% and 5%. The store's average unit overhead expenses are 30% of cost. The "regular price" of the ring is established so that, if it is sold in a "20% off" sale, the unit op

Contribution Margin Ratio Approach

1. Gold Eagle Company incurs annual fixed costs of $80,000. Variable costs are $6.00 per unit, and the sales price is $10 per unit. Gold Eagle desires to earn an annual profit of $40,000. Required: Use the contribution margin ratio approach to determine the sales volume in dollars needed to earn the desired profit. 2. Lee V

Profit Margin

Lone Star Meat Packers is a major processor of beef and other meat products. The company has a large amount of T-bone steak on hand, and it is trying to decide whether to sell the T-bone steaks as they are initially cut or to process them further into fillet Mignon and the New York cut. If the T-bone steaks are sold as initi

Financial sttatement analysis

Consider the following set of financial statements: GLOBAL GOODIES, INC. Income Statements (in 000's, except EPS) 2006 2007 2008 Net Sales $2100 $3051 $3814 Cost of Goods Sold 681 995 1040 Gross Profit 1419 2056 2774 Selling & Admin Expenses 610 705 964 Operating Pro

Contribution margin & absorption profit

JVH controls four independent firms that make special masks for covering facial burns. The firms sell to different geographical regions and do not transfer goods among themselves. They have identical linear cost functions as a function of mask production. Also, they all sell masks for the same price, $50, and pay sales commis

Time and Material Costing

Padong Re manufacturing rebuilds spot welders for manufacturers. The following budgeted cost data for 2006 is available for Padong. Time Charges Material Loading Charges Technicians' wages and benefits $228,000 - Parts manager's salary and benefits - $42,500 Office employee's salary and benefits 38,000 9,000 Other overhead

Contribution margin calculations with answers given. Show the computations.

7. Jilk Inc.'s contribution margin ratio is 40% and its fixed monthly expenses are $40,000. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $120,000? Ans: $8,000 8. Data concerning Kardas Corporation's single product appear below

Contribution Margin Analysis

Identify one situation in a company, such as Wal-mart, that could benefit from contribution margin analysis. Discuss any difficulties you may have in obtaining the data to make the analysis. My required report is to be 4-5 pages in length - therefore if you could provide me with 2-3 pages - I should be able to elaborate on t

The operating profit margin for 2006 is

2006 2005 Accounts receivable 267,500 230,000 Inventory 312,500 257,500 Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales 1,640,000 Cost of goods sold 982,500