A textile company FINE FABRICS needs raw materials P and Q which account for 35% and 40 %
of the production cost. The cost of P and Q increases by 20% and 25% respected what is
profit margin if selling price increases by only 10%
(a) 12% (b) 12% (c) 15%
(d) 10% (e) 11%
Answers
Answer:
Step-by-step explanation:
CORPORATE FINANCE & ACCOUNTING FINANCIAL RATIOS
What Factors Affect My Profit Margin Most?
BY BRIAN BEERS Updated Jun 25, 2019
Profit margin is not a particularly complex ratio but is considered to be one of the most important indications of the efficiency of a business. There are many factors that influence profit margins, but not all of them are quantitative and therefore are not obviously reflected in your calculation's variables.
If you are a retailer, for instance, your branding and marketing strategy affect your profit margin indirectly through revenues. In a way, nearly all aspects of your company's operations – from management down to floor sales tactics – affect your profit margin.
What Is Profit Margin?
There are different types of profit margin – gross versus net – but this description focuses on net profit margin because there are more factors that influence net profits.
Net profit margin is the ratio of net income relative to revenues, calculated by simply dividing profits by sales. This is a quick way to determine what percentage of your sale price that your company keeps after accounting for the costs that went into the sale.
Net Margin = Net Profit / Revenue.
Net profit margin is a better representation of financial health than revenues alone. It is possible to increase your company's earnings while decreasing your profit margin, meaning that the company is becoming relatively less efficient. It is impossible to have a net profit margin if your company is losing money.
Quantitative Factors
The most obvious, easily identifiable and broad numbers that affect your profit margin are your net profits, your sales earnings, and your merchandise costs. On your income statement, look at net revenues and cost of goods sold, for instance, for a very general view of these major variables.