Question

Company A makes an operating profit margin of 5 % on sales of R2.5 million. Company B has sales that are 20% higher than Company A and achieves an operating profit margin of 3.5%. Which company makes the highest operating profit?

Select one:

a. Company A

b. Not possible to calculate

c. Both make the same operating profit

d. Company B

Answer 1

operating profit = (operating profit margin)x(sales)

for Company A:

operating profit = $2.5\cdot 0.05=R\ 0.125$ million

for Company B:

operating profit = $2.5\cdot1.2\cdot 0.035=R\ 0.105$ million

Answer: a. Company A