The Poole Company reported the following income for Year 2: $\begin{array}{lr}
\text {Sales}&\$30,000\
\text {Cost of goods sold}&\underline{8,000}\
\text {Gross margin}&\$22,000\
\text {Selling and administrative expense}&\underline{10,000}\
\text { Operating income } & \$ 12,000 \
\text { Interest expense } & \underline{4,000} \
\text {Income before taxes } & \$8,000 \
\text { Income tax expense } & \underline{ 2,500} \
\text { Net income } & \underline{\$ 5,500}
\end{array}$
What is the company's net margin? (Round your answers to the nearest whole percent.)
A) 73%
B) 40%
C) 18%
D) 27%

Question

The Poole Company reported the following income for Year 2: $\begin{array}{lr}
\text {Sales}&\$30,000\
\text {Cost of goods sold}&\underline{8,000}\
\text {Gross margin}&\$22,000\
\text {Selling and administrative expense}&\underline{10,000}\
\text { Operating income } & \$ 12,000 \
\text { Interest expense } &  \underline{4,000} \
 \text {Income before taxes } & \$8,000 \
\text { Income tax expense } & \underline{ 2,500} \
\text { Net income } &  \underline{\$ 5,500}
\end{array}$ 
 What is the company's net margin? (Round your answers to the nearest whole percent.)
A) 73%
B) 40%
C) 18%
D) 27%

Quizplus · Accepted Answer

Net margin is calculated by dividing net income by total revenue, and then multiplying by 100 to convert the answer to a percentage. Using the income information provided, we can calculate the net margin as follows: 
Net income = $160,000 
Total revenue = $900,000 
Net margin = (Net income/Total revenue) x 100 
Net margin = ($160,000/$900,000) x 100 
Net margin = 0.1778 x 100 
Net margin = 17.78% 
Rounding to the nearest whole percent, the answer is 18%. Therefore, the best choice is C.

The Poole Company Reported the Following Income for Year 2