Dr. Zhivago Diagnostics Corp.\'s income statement for 2013 is as follows: Comput

ID: 2757247 • Letter: D

Question

Dr. Zhivago Diagnostics Corp.'s income statement for 2013 is as follows:

Compute the profit margin for 2013. (Input the profit margin as a percent rounded to 2 decimal places.)

Assume in 2014, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Once again, assume a tax rate of 30 percent on income before taxes. What is income after taxes and the profit margin for 2014? (Input the profit margin as a percent rounded to 2 decimal places.)

Sales $ 2,550,000 Cost of goods sold 1,740,000 Gross profit $ 810,000 Selling and administrative expense 357,000 Operating profit $ 453,000 Interest expense 59,900 Income before taxes $ 393,100 Taxes (30%) 117,930 Income after taxes $ 275,170

Explanation / Answer

Requirement a:

Given data,

Income after taxes = $275170

Sales = $2550000

Calculation of Profit Margin for 2013:

Profit Margin = (Income after taxes / Sales) * 100

= (275170 / 2550000) * 100

= 10.79%

Profit Margin = 10.79%

Requirement b:

Calculation of Income after Taxes for 2014:

S NO

Particulars

Amount ($)

Sales (2550000 * 110%)

2805000

Cost of Goods Sold (1740000 * 120%)

2088000

Gross Profit (A-B)

717000

Selling and administrative Expense

357000

Operating Profit (C-D)

360000

Interest Expense

59900

Income Before Taxes (E-F)

300100

Taxes (30%)

90030

Income after Taxes (G-H)

210070

Income after Taxes for 2014 = $210070

Calculation of Profit Margin for 2014:

Income after Taxes = $210070

Sales = $2805000

Profit Margin = (Income after Taxes / Sales) * 100

= (210070 / 2805000) * 100

= 7.489%

Profit Margin for 2014 = 7.49%

Income after taxes = $210070

Profit Margin = 7.49%