Use this balance sheet and income statement for the first year of operations for Layton Novelties,Inc.to answer the following question.Use ending balances whenever average balances are required for computing ratios. $\begin{array}{c}
\text {Abner Systems, Inc.}\
\text {Income Statement}\
\text {For the Year Ended December 31, 2010}\\begin{array}{lr}
\text { Net sales } & \$ 80,000 \
\text { Costs of goods sold } & \underline{32,000} \
\text { Gross margin } & \$ 48,000 \
\text { Operating expenses } & \underline{12,000}\
\text { Income before income taxes }&\$36,000 \
\text { Income taxes }& \underline{14,400}\
\text {Net income } & \$21,600
\end{array}\end{array}$
The profit margin of Layton Novelties is

Question

Use this balance sheet and income statement for the first year of operations for Layton Novelties,Inc.to answer the following question.Use ending balances whenever average balances are required for computing ratios.  $\begin{array}{c}
\text {Abner Systems, Inc.}\
\text {Income Statement}\
\text {For the Year Ended December 31, 2010}\\begin{array}{lr}
\text { Net sales } & \$ 80,000 \
\text { Costs of goods sold } &  \underline{32,000} \
\text { Gross margin } & \$ 48,000 \
\text { Operating expenses } &  \underline{12,000}\
\text { Income before income taxes }&\$36,000 \
\text { Income taxes }& \underline{14,400}\
 \text {Net income } & \$21,600 
\end{array}\end{array}$
   The profit margin of Layton Novelties is

Quizplus · Accepted Answer

The profit margin is calculated by dividing the net income by the total revenue. 
Net income for Layton Novelties is $81,000 and total revenue is $300,000 (as per the income statement).
Profit margin = Net income / Total revenue
Profit margin = $81,000 / $300,000
Profit margin = 0.27 or 27%
Therefore, the best choice is D - 27%.

Use This Balance Sheet and Income Statement for the First