Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: 6BP b (page 78)

Dr. Zhiva虁go Diagnostics Corp.鈥檚 income statement for 20X1 is as follows
Sales $ 2790000
Cost of goods sold 1790000
Gross profits $ 1000000
Selling and administrative expenses 302000
Operating profits $ 698000
Interest Expense 54800
Income before tax $ 643200
Taxes 30% 192960
Income after tax $ 450240
b. Assume that in 20X2, 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. Assume a tax rate of 30 percent on income before taxes. What is income after taxes and the profit margin for 20X2?

Expert verified

The income after tax of the company is $394,940, and the profit margin is 12.87%.

Step by step solution

Sales ( $ 2790000x 110% )	$3,069,000
Cost of goods sold($ 1790000x 120%)	2148000
Gross profits	921000
Selling and administrative expenses	302000
Operating profits	619000
Interest Expense	54800
Income before tax	564200
Taxes 30%	169260
Income after tax	$ 394940

Profit Margin = Net income after tax / sales

= $ 394940 / $ 3069000

= 12.87%

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Selling and administrative expenses	$112,000
Depreciation expenses	73,000
Sales	489,000
Interest expenses	45,000
Cost of goods sold	156,000
Taxes	47,000

Sales	$900,000
Shares outstanding	50,000
Cost of goods sold	400,000
Interest expenses	40,000
Selling and administration expenses	60,000
Depreciation expenses	20,000
Preferred stock dividend	80,000
Taxes	50,000

Times mirror and glass company
Sales	\)126,000
Less: Cost of goods sold	93,000
Gross profit	\(33,000
Less: selling and administrative expenses	11,000
Lease Expenses	4,000
Operating profit*	\)18,000
Less: Interest expenses	3,000
Earning before taxes	\(15,000
Less: Taxes (30%)	4,500
Earning after taxes	\)10,500

Sales	\( 2790000
Cost of goods sold	1790000
Gross profits	\) 1000000
Selling and administrative expenses	302000
Operating profits	\( 698000
Interest Expense	54800
Income before tax	\) 643200
Taxes 30%	192960
Income after tax	$ 450240