Question

accel sports company makes snowboards, downhill skis, cross - country skis, skateboards, surfboards, and inline skates. the company has found it beneficial to split operations into two divisions based on the climate required for the sport: snow sports and non - snow sports. the following divisional information is available for the past year.
view the data.
begin by selecting the formula to calculate profit margin ratio, and then enter the amounts to calculate each divisions profit margin ratio.
data
snow sports
non - snow sports
net sales revenue
$ 5,600,000
$ 8,500,000
operating income
$ 1,176,000
$ 1,785,000
average total assets
4,700,000
6,800,000
roi
25 %
26.3 %

Explanation:

Step1: Formula for profit margin ratio

Profit margin ratio = $\frac{\text{Operating Income}}{\text{Net Sales}}$

Step2: Calculate for Snow Sports

Substitute values: $\frac{1176000}{5800000}$
$$\frac{1176000}{5800000}= 0.2027586\approx 20.3\%$$

Step3: Calculate for Non - snow Sports

Substitute values: $\frac{1785000}{8500000}$
$$\frac{1785000}{8500000}=0.21 = 21\%$$

Answer:

Snow Sports: $20.3\%$, Non - snow Sports: $21\%$. The non - snow sports division has a slightly higher profit margin ratio than the snow sports division. This means that for every dollar of net sales, the non - snow sports division generates a bit more operating income as a proportion compared to the snow sports division.