An operations manager has collected the following informatio

An operations manager has collected the following information for a scenario in which she would hire a buyer: Labor costs = $600,000 Materials costs = $2,500,000 Overhead costs = $280,000 Estimated sales = $4,000,000 What is the profit margin for this scenario?

Solution

Total Costs include all the Material, Labor and Overhead costs.

Total Costs of the scenario = $2,500,000 + $600,000 + $280,000 = $3,380,000.

Sales Revenue = $4,000,000

Profit for the scenario= $4,000,000 - $3,380,000 = $620,000

Profit margin = (Profit ÷ Sales ) × 100

= ($620,000 ÷ $4,000,000) × 100

= 15.5%

Therefore, the profit margin for this scenario is 15.5%