According to the producer price index database maintained by the Bureau of Labor

Question

According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 4.8 percent between 2012 and 2013. Let’s see whether these changes are reflected in the income statement of Computer Tycoon Inc. for the year ended December 31, 2013.

2013 2012 Sales Revenue $ 113,000 $ 139,500 Cost of Goods Sold 66,500 76,700 Gross Profit 46,500 $ 62,800 Selling, General, and Administrative Expenses 37,300 39,600 Interest Expense 630 540 Income before Income Tax Expense 8,570 22,660 Income Tax Expense 2,000 6,300 Net Income $ 6,570 $ 16,360
1-a. Compute the gross profit percentage for each year. (Round your answers to 1 decimal place.)
Gross Profit Percentage 2012 % 2013 %
1-b. Assuming that the change from 2012 to 2013 is the beginning of a sustained trend, is Computer Tycoon likely to earn more or less gross profit from each dollar of sales in 2014? More Gross Profit Less Gross Profit
2-a. Compute the net profit margin for each year. (Round percentage your answers to 1 decimal place.)
Net Profit Margin 2012 % 2013 %
2-b. Did Computer Tycoon do a better or worse job of controlling expenses in 2013 relative to 2012?
Better Job Worse Job
3-a.Computer Tycoon reported average net fixed assets of $55,500 in 2013 and $46,400 in 2012. Compute the fixed asset turnover ratios for both years. (Round your answers to 2 decimal places.)
Fixed Asset Turnover 2012 2013
3-b. Did the company better utilize its investment in fixed assets to generate revenues in 2013 or 2012?
2012 2013
4-a. Computer Tycoon reported average stockholders’ equity of $55,300 in 2013 and $42,100 in 2012. Compute the return on equity ratios for both years. (Round your percentage answers to 1 decimal place.)
Return on Equity (ROE) 2012 % 2013 %
4-b. Did the company generate greater returns for stockholders in 2013 than in 2012?
Yes No

Explanation / Answer

1-a

Gross profit percentage = Gross profit / Sales * 100

1-b

Less Gross profit (as Gross profit percentage declined)

2-a

Net profit margin = Net profit / sales * 100

2-b

Worse job (as Net profit margin declined)

3-a

Fixed asset turnover = Sales / Fixed assets

3-b

No (as fixed asset turnover declined)

4-a

Return on equity = Net income / Shareholders equity * 100

4-b

Yes (as Return on equity increased)

Gross profit percentage 2012 45% [(62,800/139,500)*100] 2013 41.2% [(46,500/113,000)*100]

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