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# Cost and Profit

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Manager
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24 Jan 2010, 17:13
Hi,
Could anybody explain in a bit detail how to solve the following question:

Q: A company's monthly profit margin is equal to the difference between sales revenue and production costs in a given month. If sales revenue rose by 10 percent since January while production costs rose by 5 percent, what was the percentage increase in the profit margin?
1. Sales revenue was $2,000,000 in January 2. Profit margin was$100,000 in January

-Thanks in anticipation.
-Amit
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25 Jan 2010, 01:11
Hi Amit,

UR probably clear that our aim is to calculate the percentage increase in the profit margin

For this we will first have to fine the value of Profit Margin(PM) for the month of January and Feb. We know the PM for the month of Jan but in order to calculate the PM for the month of Feb we will have to fine the SR of Feb and PC of Feb.

We can find the SR of Feb as the below
SR in Jan was 2,000,000
SR is Feb increased by 10% on that of Jan i.e. the increased amount (10/100)*2,000,000=200,000
So the total SR in Feb = SR in Jan + Incresed amount = 2,000,000 + 200,000 = 2,200,000

Profit Margin(PM) for Jan = Sales Revenur(SR) for Jan - Production Cost(PC) for Jan
i.e. 100,000 = 2,000,000 - PC
Therefore PC for Jan = 2,000,000 - 100,000 = 1,900,000

Now its given that PC rose by 5%.
Therfore PC for Feb = (5/100)*1,900,000 + 1,900,000 = 1965000

PM for Feb = SR for Feb - PC for Feb = 2,200,000 - 1965000 = 235000

% Change in PM = ((Difference in PM of 2 months)/PM of Jan)*100 = 135%

Can you pls confirm the Ans Amit
CEO
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25 Jan 2010, 01:49
Profit (P)= Sale(S) - Cost(C)

New Profit (P') = 110S/100 - 105C/100

= 5S/100 + 105S/100 - 105C/100 = 5S/100 + 105/100 (S-C)

= 5S/100 + 105P/100

Now statement 1 gives S
statement 2 gives P

Thus both together are sufficient. Thus C
If this is PS ques....solve it.

Please always specify the type of ques whether its PS or DS

OA pls
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05 Aug 2012, 22:43
Statement (1) by itself is insufficient. Imagine two polar scenarios: when January production costs are 0 (profit margin grew by 10%) and when January production costs are just under \$2,000,000 (profit margin grew immensely).

Statement (2) by itself is insufficient. Imagine two polar scenarios: when January production costs are 0 (profit margin grew by 10%) and when January production costs are huge (profit margin grew substantially).

Above is the OE explanation provided by gmatclub-

Can someone please explain me how profit margin will grow substantially when costs are just under 2,000,000?
Re: Cost and Profit   [#permalink] 05 Aug 2012, 22:43
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# Cost and Profit

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