Question

Low Carb Diet Supplement Inc. has two divisions. Division A has a profit of $178,000 on sales of $2,680,000. Division B is able to make only $32,600 on sales of $386,000. a. Compute the profit margins (return on sales) for each division. (Input your answers as a percent rounded to 2 decimal places.) b. Based on the profit margins (returns on sales), which division is superior

Answer 1

Answer:

a. 6.64% and 8.45%

b. Division B

Explanation:

The computation of the profit margin is shown below:

Profit margin = (Profit ÷ sales) × 100

For Division A, it would be

= ($178,000 ÷ $2,680,000) × 100  

= 6.64%

For Division B, it would be

= ($32,600 ÷ $386,000) × 100  

= 8.45%

b. Based on the profit margin, we can conclude that Division B has a higher profit margin that reflects the superior position