Presented are the income statements of Big Toy Factory and Small Toy Factory for the current year: Which company has the better relationship between net income and net sales revenue?
A)Impossible to determine
B)Both have the same relationship
C)Big Toy
D)Small Toy

Question

Presented are the income statements of Big Toy Factory and Small Toy Factory for the current year:  Which company has the better relationship between net income and net sales revenue?
A)Impossible to determine 
B)Both have the same relationship 
C)Big Toy 
D)Small Toy

Quizplus · Accepted Answer

To determine the relationship between net income and net sales revenue, we need to calculate the net profit margin which is net income divided by net sales revenue.

For Big Toy Factory: 
Net profit margin = $200,000/$1,000,000 = 0.2 or 20%

For Small Toy Factory: 
Net profit margin = $50,000/$500,000 = 0.1 or 10%

Therefore, Big Toy Factory has a better relationship between net income and net sales revenue as their net profit margin is higher.

Presented Are the Income Statements of Big Toy Factory and Small