Question

Low Carb Diet Supplement Inc. has two divisions. Division A has a profit of\(156,000 on sales of \)2,010,000. Division B is able to make only \(28,800 onsales of \)329,000. Based on the profit margins (returns on sales), which divisionis superior?

Short answer

The profit margin of division A is 7.76%, and division B is 8.75%. Based on this, Division B of the company is superior.

Step-by-step solution

Step: Profit margin of division A:

$\begin{array}{rcl}\mathit{P}\mathit{r}\mathit{o}\mathit{f}\mathit{i}\mathit{t}\mathbf{}\mathit{m}\mathit{a}\mathit{r}\mathit{g}\mathit{i}\mathit{n}& \mathbf{=}& \frac{\mathbf{N}\mathbf{e}\mathbf{t}\mathbf{}\mathbf{i}\mathbf{n}\mathbf{c}\mathbf{o}\mathbf{m}\mathbf{e}}{\mathbf{S}\mathbf{a}\mathbf{l}\mathbf{e}\mathbf{s}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{156}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{020}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \mathbf{7}\mathbf{.}\mathbf{76}\mathbf{\%}\end{array}$

Step: Profit margin of division B:

$\begin{array}{rcl}\mathit{P}\mathit{r}\mathit{o}\mathit{f}\mathit{i}\mathit{t}\mathbf{}\mathit{m}\mathit{a}\mathit{r}\mathit{g}\mathit{i}\mathit{n}& \mathbf{=}& \frac{\mathbf{N}\mathbf{e}\mathbf{t}\mathbf{}\mathbf{i}\mathbf{n}\mathbf{c}\mathbf{o}\mathbf{m}\mathbf{e}}{\mathbf{S}\mathbf{a}\mathbf{l}\mathbf{e}\mathbf{s}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{28}\mathbf{,}\mathbf{800}}{\mathbf{\$}\mathbf{329}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \mathbf{8}\mathbf{.}\mathbf{75}\mathbf{\%}\end{array}$