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.

 

 

 

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