Chapter 2: Q7BP-a (page 79)

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:
a. Cost of goods sold to sales.

Short Answer

Expert verified

The cost of goods sold to sales for 20X1 and 20X2 are 65.94% and 84.57%, respectively. It is increased by 18.63%.

Step by step solution

Cost of goods sold to sales for the year 20X1

$\begin{array}{rcl} Cost of goods sold to sales (20 \times 1) & = & \frac{Cost of goods sold}{Sales} \\ = & \frac{$ 2, 130, 000}{$ 3, 230, 000} \\ = & 65.94 % \end{array}$

Cost of goods sold to sales for the year 20X2

$\begin{array}{rcl} Cost of goods sold to sales (20 \times 2) & = & \frac{Cost of goods sold}{Sales} \\ = & \frac{$ 2, 850, 000}{$ 3, 370, 000} \\ = & 84.57 % \end{array}$

Change in cost of goods sold to sale ratio

$\begin{array}{rcl} Change in Ratio & = & Cost of goods sold to sales (20 \times 2) - Cost of goods sold to sales (20 \times 1) \\ = & 84.57 % - 65.94 % \\ = & 18.63 % \end{array}$

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Retained earning	Bond payable
Accounts payable	Accrued wages payable
Prepaid expenses	Accounts receivable
Plant and equipment	Capital in excess of par
Inventory	Preferred stock
Common stock	Marketable security

	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

	Capable corporation	Muli-media inc
Net income	\(31,200	\)140,000
Sales	317,000	2,700,000
Total assets	402,000	965,000
Total debts	163,000	542,000
Stockholder’s equity	239,000	423,000

Short Answer

Step by step solution

Cost of goods sold to sales for the year 20X1

Cost of goods sold to sales for the year 20X2

Change in cost of goods sold to sale ratio

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