Question

Problem 1.

Mr. Omar prepared an Income Statement for the month of January 2013 to analyze its purchasing and profit leverage from the income and expense transactions.

Income Statement

Sales RO 2,500

Cost of Goods Sold

Purchases RO 1,800

Operating Expenses 475 2,275__

Profit Before Tax 225

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Requirement: Solve for the Profit before Tax after the following assumptions

The sales increased by 12.5% and profit increased to RO 235.

The cost decreases by 8 1/4% and but profit increased by RO 5.

Answer 1

The analysis of purchasing and profit leverage from the income and expenses transactions is as follows:

A) The sales increased by 12.5% profit increased to RO 235

	RO
Sales (RO 2,500 * 112.5%) (A)	2,812.50
Cost of Goods Sold (B) = A - C	2,577.50
Profit Before Tax (Given) (C)	235.00

Analysis:

The due to the increasment of sales by 12.5% and profit increased to RO 235 the total cost of goods sold is increased from the RO 2 ,275 to RO 2,577.50.

B) Cost decreased by 81/4% and but profit increased by RO 5

	RO
Sales (A = B + C)	2,317
Cost of Goods Sold (RO 2,275 - (RO 2,275 * 8.25%) (B)	2,087
Profit Before Tax ( RO 225 + RO 5) (C)	230

Analysis:

As cost decreased by 81/4% and but profit increased by RO 5 .The sales revenue of the organisation decreased from RO 2,500 TO RO 2,317.