In 2012, Snout and Smith, Inc. had a gross profit of $27,000 on sales of $110,000. S & S's operating expenses for 2012 were $13,000, and its net profit margin was .0585. Snout and Smith had no interest expense in 2012. What was S&S's operating profit margin?
A) 0.245
B) 0.118
C) 0.127
D) 0.157

Question

Quizplus · Accepted Answer

Operating profit margin = Operating profit / Sales

Gross profit = Sales - Cost of goods sold
Gross profit = $110,000 - Cost of goods sold

Given, Gross profit = $27,000
Therefore, Cost of goods sold = $110,000 - $27,000 = $83,000

Now, Operating profit = Gross profit - Operating expenses
Operating profit = $27,000 - $13,000 = $14,000

Net profit = Operating profit - Interest expense (given as 0)
Net profit = $14,000

Net profit margin = Net profit / Sales
Given, Net profit margin = 0.0585
Therefore, $14,000 / Sales = 0.0585
Thus, Sales = $14,000 / 0.0585 = $239,316.24

Operating profit margin = Operating profit / Sales
Operating profit margin = $14,000 / $239,316.24 ≈ 0.0585

Therefore, the operating profit margin is 0.127, which is option C.