ACCA Applied Knowledge · Management Accounting · Performance measurement - application
Kestrel Ltd reported revenue of $800,000, cost of sales of $520,000 and operating expenses of $160,000. What is its operating profit margin?
The operating profit margin is 15.0%. Operating profit is revenue of $800,000 less cost of sales of $520,000 and operating expenses of $160,000, giving $120,000, which is divided by revenue. Using gross profit instead would wrongly give 35.0%.
- A15.0%Correct
- B20.0%
- C35.0%
- D65.0%
Explanation
Operating profit = 800,000 - 520,000 - 160,000 = 120,000. Margin = 120,000 / 800,000 = 15.0%. The 35.0% figure is the gross profit margin (280,000/800,000), which ignores operating expenses.
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