ACCA Performance Management (F5) Certification Practice Exam

How is margin defined?

1. Profit expressed as a percentage of cost

2. Profit expressed as a percentage of total revenue

3. Profit expressed as a percentage of sales price

4. Cost expressed as a percentage of profit

The correct answer is: Profit expressed as a percentage of sales price

Margin is commonly understood as profit expressed as a percentage of sales price. This means that it reflects how much profit a company retains from each unit sold after accounting for the sales price. When determining margin in this context, it provides insight into the profitability relative to the sales activity, allowing businesses to assess their pricing strategies and cost management. For instance, if a product sells for $100 and the cost to produce it is $70, the profit is $30. When calculating the margin, you would express this profit as a percentage of the sales price: ($30 profit / $100 sales price) x 100% = 30% margin. This indicates the portion of sales revenue that remains as profit after the costs are covered. Understanding margin in this way is crucial for businesses as it influences pricing decisions and reflects the efficiency of operations.