Question

Low Carb Diet Supplement, Inc., has two divisions. Division A has a profit of $100,000 on sales of $2,000,000. Division B is only able to make $25,000 on sales of $300,000. Based on the profit margins (returns on sales), which division is superior?

Answer 1

Answer:

Division A

Explanation:

Low Carb Diet Supplement, Inc.

Division A:

Profit Margin = Sales / Profit

Profit Margin = $2,000,000 / $100,000

Profit Margin = 20%

Which means Division A makes a profit of $20 on every sales of $100.

Division B:

Profit Margin = Sales / Profit

Profit Margin = $300,000 / $25,000

Profit Margin = 12%

Which means Division B makes a profit of $12 on every sales of $100.

Hence, Based on the Profit Margins (Return on Sales), Division A is superior as have higher rate of Profit Margin when compared to Division B.