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

01

Selling and administrative expenses to sales for the year 20X1

Sellingandadministrativeexpensestosalesfortheyear20X1=SellingandadministrativeexpensesSales=$298,000$3,230,000=9.22%

02

Selling and administrative expenses to sales for the year 20X2

Sellingandadministrativeexpensestosalesfortheyear20X2=SellingandadministrativeexpensesSales=$227,000$3,370,000=6.74%

03

Change in selling and administrative expenses to sales ratio

Changeinratio=Sellingandadministrativeexpensestosale20×2-Sellingandadministrativeexpensestosale20×1=6.74%-9.22%=-2.48%

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