ACCA Applied Knowledge · Management Accounting · Monitoring performance and reporting
Harlow Ltd reported sales of $800,000, cost of sales of $520,000 and operating expenses of $180,000 for the year. What is its operating profit margin?
The operating profit margin is 12.5%. Operating profit is sales of $800,000 less cost of sales of $520,000 and operating expenses of $180,000, giving $100,000, which is 12.5% of sales. Using gross profit instead would wrongly give 35%.
- A12.5%Correct
- B35.0%
- C22.5%
- D77.5%
Explanation
Operating profit = 800,000 - 520,000 - 180,000 = 100,000. Margin = 100,000 / 800,000 = 12.5%. The 35% figure is the gross profit margin (280,000/800,000), which ignores operating expenses.
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