(Answered) ACC205 Week 5 – Discussion 2

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ACC205 Week 5 – Discussion 2

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 Profit Margin
Year Ending December 2012 Year Ending December 2011 Year Ending December 2010
Revenues 40,000 35,000 33,000
Operating Expenses
Salaries 15,000 10,000 9,000
Maintenance and Repairs 6,000 9,000 10,000
Rental Expense 2,500 2,500 2,500
Depreciation 2,000 2,000 2,000
Fuel 4,000 3,500 2,500
Total Operating Expenses 29,500 27,000 26,000
Operating Income 10,500 8,000 7,000
Sales and Administrative Expenses 6,000 4,000 3,000
Interest Expense 2,500 2,000 1,000
Net Income 2,000 2,000 3,000

Above is a comparative income statement for Cecil, Inc. for the years 2010, 2011, and 2012.  Calculate the net-profit margin for each of these years.  Comment on the profit margin trend.

ACC205 Week 5 – Discussion 2 Answer

To calculate the net-profit margin, you can use the formula:

Net Profit Margin=(Net IncomeRevenues)×100

Let’s calculate the net-profit margin for each year:

  1. Year Ending December 2012: Net Profit Margin=(2,00040,000)×100=5%
  2. Year Ending December 2011: Net Profit Margin=(2,00035,000)×100≈5.71%
  3. Year Ending December 2010: Net Profit Margin=(3,00033,000)×100≈9.09%

Comment on the Profit Margin Trend: The net-profit margin represents the percentage of revenue that remains as profit after all expenses are deducted. In this case:

  • The net-profit margin in 2012 is 5%.
  • The net-profit margin in 2011 is slightly higher at 5.71%.
  • The net-profit margin in 2010 is the highest at 9.09%.

The trend indicates a decrease in net-profit margin from 2010 to 2012. This decline suggests that the company’s profitability relative to its revenue has decreased over the years. Factors such as an increase in operating and administrative expenses or a decrease in revenue could contribute to this trend. Further analysis of the individual components of expenses and revenues would provide more insights into the factors influencing the net-profit margin.
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