A company has total revenue of $759,000 and total expenses of $445,500.If the company understates sales by $13,500,what is the effect on the company's net profit margin?
A)Net profit margin would be understated.
B)Net profit margin would be overstated.
C)Net profit margin would be unaffected.
D)Net profit margin cannot be computed because overstating sales is unethical.

Question

Quizplus · Accepted Answer

Net profit margin = Net income ÷ Revenues
An understatement of sales would decrease total revenues and net income by the same dollar amount.The effect on net income is more significant than the effect on revenues because net income is a smaller number than total revenue.Therefore net profit margin would be understated.

A Company Has Total Revenue of $759,000 and Total Expenses