HG Lang Designs operates an exclusive bridal boutique in Manhattan. All gowns ar
ID: 2472894 • Letter: H
Question
HG Lang Designs operates an exclusive bridal boutique in Manhattan. All gowns are designed by Lang but are manufactured by various small firms in France and Italy. The following financial information for the company relates to Problems 14-1 through 14-4: Assume you are the vice president of operations for HG Lang and you are preparing for a meeting to discuss the 2015 financial results with Adrienne Aiello, the company president. Prepare a vertical analysis of the income statements for 2014 and 2015. Based on this analysis, what is Adrienne Aiello likely to focus on in your upcoming meeting? During 2015, the company had price increases from its European gown manufacturers. Adrienne Aiello has asked you to estimate what the gross margin would have been for 2015 if the price increase had not occurred.Explanation / Answer
a)
If the price would not have increased then the COGS should be 65% same as 2014 and the COGS would be 65% of 2015 sales = 65% x 20,632,000 = 13,410,479
The gross income is calculated below:
12/31/2015 Percent 12/31/2014 Percent Net sales $20,632,000 100.00% $19,282,000 100.00% COGS $14,442,000 70.00% $12,533,000 65.00% Gross Margin $ 6,190,000 30.00% $ 6,749,000 35.00% Operating expense Selling expense $ 640,000 3.10% $ 578,000 3.00% General and administrative expenses $ 2,682,000 13.00% $ 2,314,000 12.00% Total Operating expense $ 3,322,000 16.10% $ 2,892,000 15.00% Operating income $ 2,868,000 13.90% $ 3,857,000 20.00% Interest expense $ 29,000 0.14% $ 38,000 0.20% Income before taxes $ 2,839,000 13.76% $ 3,819,000 19.81% Income taxes $ 994,000 35.01% $ 1,337,000 35.01% Net income $ 1,845,000 8.94% $ 2,482,000 12.87%Related Questions
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