Revenue and expense data for Gresham Inc. for two recent years are as follows: C
ID: 2483348 • Letter: R
Question
Revenue and expense data for Gresham Inc. for two recent years are as follows: Current Year Previous Year Sales $2,500,000 $2,350,000 Cost of goods sold 1,500,000 1,292,500 Selling of expenses 300,000 376,000 Administrative expense 375,000 305,500 Income tax expense 150,000 141,000 a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. Round to one decimal place. b. Comment on the significant changes disclosed by the comparative income stateme
Explanation / Answer
The cost of goods sold has been increased significantly in the current year (60% of sales) in comparison to the previous year (55% of sales). Consequently the even after increase in sales in the current year, the gross profit has been reduced to $1000000 from $1057000 in the previous year.
However, the operating expense has been reduced by 2% (as a percentage of sales) in the current n comparison to the previous year. The reduction in operating expenses has offset the adverse effect of increase in the gross profit to some extent in the current year.
Current Year % of sales Previous Year % of sales Sales $ 25,00,000.00 100.00% $ 23,50,000.00 100.00% cost of goods sold $ 15,00,000.00 60.00% $ 12,92,500.00 55.00% gross profit $ 10,00,000.00 40.00% $ 10,57,500.00 45.00% Selling expenses $ 3,00,000.00 12.00% $ 3,76,000.00 16.00% admonistrative expenses $ 3,75,000.00 15.00% $ 3,05,500.00 13.00% Total Operating Expenses $ 6,75,000.00 27.00% $ 6,81,500.00 29.00% Operating profit $ 3,25,000.00 13.00% $ 3,76,000.00 16.00% Less: Income tax expense $ 1,50,000.00 6.00% $ 1,41,000.00 6.00% Net Profit $ 1,75,000.00 7.00% $ 2,35,000.00 10.00%Related Questions
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