7BP b Question:The Haines Corp. shows ... [FREE SOLUTION]

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Foundations Of Financial Management

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

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: 7BP b (page 79)

Question:The Haines Corp. shows the following financial data for 20X1 and 20X2:
20X1
20X2
Sales
$3,230,000
$3,370,000
Cost of goods sold
2,130,000
2,850,000
Gross profits
$1,100,000
$520,000
Selling and administrative expenses
298,000
227,000
Operating profits
$802,000
$293,000
Interest expense
47,200
51,600
Income before taxes
$754,800
$241,400
Taxes (35%)
264,180
84,490
Income after tax
$490,620
$156,910
For each year, compute the following and indicate whether it is increasing or
decreasing profitability in 20X2 as indicated by the ratio:
b. Selling and administrative expense to sales.

Short Answer

Expert verified

Selling and administrative expenses to sales for 20X1 and 20X2 are 9.22% and 6.74%, respectively. It is decreased by 2.48%.

Step by step solution

Selling and administrative expenses to sales for the year 20X1

$S e l l i n g a n d a d m i n i s t r a t i v e e x p e n s e s t o s a l e s f o r t h e y e a r (20 X 1) = \frac{S e l l i n g a n d a d m i n i s t r a t i v e e x p e n s e s}{S a l e s} = \frac{$ 298, 000}{$ 3, 230, 000} = 9.22 %$

Selling and administrative expenses to sales for the year 20X2

$S e l l i n g a n d a d m i n i s t r a t i v e e x p e n s e s t o s a l e s f o r t h e y e a r (20 X 2) = \frac{S e l l i n g a n d a d m i n i s t r a t i v e e x p e n s e s}{S a l e s} = \frac{$ 227, 000}{$ 3, 370, 000} = 6.74 %$

Change in selling and administrative expenses to sales ratio

$C h a n g e i n r a t i o = S e l l i n g a n d a d m i n i s t r a t i v e e x p e n s e s t o s a l e (20 脳 2) - S e l l i n g a n d a d m i n i s t r a t i v e e x p e n s e s t o s a l e (20 脳 1) = 6.74 % - 9.22 % = - 2.48 %$

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Lancaster corporation
Sales	\(246,000
Cost of goods sold	122,000
Gross profit	\)124,000
Fixed charges (other than interest)	27,500
Income before interest and taxes	\(96,500
Interest	21,800
Income before taxes	\)74,700
Taxes (35%)	26,145
Income after taxes	$48,555

	20X1	20X2
Sales	\(8,000,000	\)10,000,000
Cost of goods sold	6,000,000	9,000,000
Inventory	800,000	1,000,000

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Short Answer

Step by step solution

Selling and administrative expenses to sales for the year 20X1

Selling and administrative expenses to sales for the year 20X2

Change in selling and administrative expenses to sales ratio

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