Question :
Learning Objective 3-5
1) Use the following information from Hormel Foods : 1253193
Learning Objective 3-5
1) Use the following information from Hormel Foods Corporation’s income statement to calculate the company’s 2012 profit margin on sales ratio.
(in thousands)
Fiscal Year Ended
October 26, 2012
October 28, 2011
Net sales
$6,754,903
$6,193,032
Net income
$285,500
$301,892
A) 23.7%
B) 4.2%
C) 4.4%
D) 5.0%
2) Use the following information from Hot Spots, Inc.’s income statement to calculate the company’s 2012 profit margin on sales ratio.
December 31, 2012
December 31, 2011
Net sales
$6,000,000
$4,000,000
Net income
$600,000
$500,000
A) 10.0%
B) 12.0%
C) 12.5%
D) 20.0%
3) Using the following income statement, calculate the profit margin on sales ratio.
Sails for Sale
Income Statement
For the Month Ended September 30, 2011
Net sales$80,000
Cost of goods sold40,000
Rent12,000
Utilities3,000
Salaries18,000
Depreciation5,000
Net income (loss)$2,000
A) 2.5%
B) 50.0%
C) 47.5%
D) 5.0%
4) Using the following income statement, calculate the profit margin on sales ratio.
Sails for Sale
Income Statement
For the Month Ended September 30, 2009
Net sales$80,000
Cost of goods sold40,000
Rent12,000
Utilities3,000
Salaries18,000
Depreciation5,000
Net income (loss)$12,000
A) 6.7%
B) 50.0%
C) 15.0%
D) 30.0%
5) Use the following information from Mountaineers Mania Corporation’s income statement to calculate the company’s 2012 profit margin on sales ratio.
Mountaineers Mania
Income Statement
For the Month Ended December 31, 2012
Revenyes$220,000
Cost of goods sold140,000
Rent30,000
Utilities15,000
Salaries18,000
Depreciation6,000
Net income (loss)$11,000
Mountaineers Mania
Balance Sheet
December 31, 2012
Cash$61,200Accounts Payable$30,000
Prepaid rent21,600Common stock30,000
Equipment60,000Retained earnings82,800
Total assets$142,800Total liabilities & SE$142,800
A) 20.0%
B) 5.0%
C) 7.7%
D) 13.3%
6) Company A has a profit margin on sales ratio of 8% and Company B has a profit margin on sales ratio of 12%. Which of the following must be true?
A) Company B must charge more for its goods than Company A.
B) Company B must have a higher gross profit margin than Company A.
C) Company B’s expenses must be less than Company A’s.
D) Company B must make more on each dollar of sales than Company A.
7) Company A has a profit margin on sales ratio of 8% and Company B has a profit margin on sales ratio of 12%. Which of the following must be true?
A) Company A must charge less for its goods than Company B.
B) Company A must have a lower gross profit margin than Company B.
C) Company A must make less per dollar of sales than Company B.
D) Company A must charge more for its goods than Company B.
8) Which of the following must be true?
A) The higher the profit margin on sales ratio the better.
B) Too high of a profit margin on sales ratio may mean the company is charging too much for its goods.
C) The profit margin on sales ratio is greater than the gross profit ratio of a company.
D) If a company’s gross profit ratio is greater than 10% than its profit margin on sales ratio must also be greater than 10%.
9) The profit margin on sales ratio measures the markup on a company’s goods.
10) The profit margin on sales ratio equals net income divided by net sales.
11) An increase in a company’s profit margin on sales ratio from one year to the next is considered an improvement in operations.
12) If a company neglected to record depreciation expense for the year, the company’s profit margin on sales ratio would be overstated.
