The following information pertains to Cashe Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. What is the profit margin for Cache?

Question

The following information pertains to Cashe Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.  What is the profit margin for Cache?

Quizplus · Accepted Answer

To calculate the profit margin, we need to use the formula: 
Profit Margin = Net Income / Sales

We can calculate the net income by subtracting the total expenses from the gross profit.

Gross Profit = Sales – Cost of Goods Sold
Gross Profit = $700,000 - $400,000
Gross Profit = $300,000

Net Income = Gross Profit – Total Expenses
Net Income = $300,000 - $100,000
Net Income = $200,000

Now, we can calculate the profit margin: 
Profit Margin = Net Income / Sales
Profit Margin = $200,000 / $900,000
Profit Margin = 0.222 or 22.2%

Therefore, the answer is D.

The Following Information Pertains to Cashe Company