Question

Low Carb Diet Supplement Inc. has two divisions. Division A has a profit of $156,000 on sales of $2,010,000. Division B is able to make only $28,800 on sales of $329,000. Based on the profit margins (returns on sales), which division is superior

Answer 1

Based on the profit margins (returns on sales), the division that is superior is: Division B.

Profit margins:

Using this formula

Profit margins=Profit/Sales ×100

Let plug in the formula

Division A

Profit margin=$156,000/$2,010,000×100

Profit margin=7.76%

Division B:

Profit margin=$28,800/$329,000×100

Profit margin=8.75%

Based on the above calculation division B has the highest profit margin of 8.75%.

Inconclusion based on the profit margins (returns on sales), the division that is superior is: Division B.

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