Question

Table 1
Income Statement Data

Units Sold	150,000
Unit Cost	$40.00
Price	$90.00
Advertising	$1,200,000
Consumer Promotion	$1,600,000
Personal Selling	5 salesperson @ $80,000 each
Dealer Promotions	$1,300,000
Product Development	$900,000

1.A company had the following results last period. What is the gross margin (%) for the period? [img: “Table 1 Income Statement Data.jpg”]
2.A company had the following results last period. What is the expense ratio (%) for the period? [img: “Table 1 Income Statement Data.jpg”]
3.A company had the following results last period. What is the return on sales (%) for the period? [img: “Table 1 Income Statement Data.jpg”]
4.If unit cost is $35, but all other information in Table 1 stays the same, which of the three key measures does not
change: gross margin, expense ratio, or return on sales? [img: “Table 1 Income Statement Data.jpg”]

Answer 1

Gross margin=( revenue - cost of goods sold)/revenue

Adding other expenses= $5,400,000

Per unit expense= $5,400,000/150,000=$36

Cost of goods sold= $40 + $36=$76

Gross margin= (90 -76)/90= 15.55%

b) advertising expense ratio = (120000 *100)/ (90*150000)

=8.89%

Consumer promotion expense= (1600000*100)/(90*150000)= 11.85%

Personal selling expense ratio =(400000*100)/(90*150000)

= 2.96%

Dealer promotion expense= 1300000*100/ ( 90* 150000)

= 9.63%

C)return on sales= operating profit/ net sales

Operating profit= revenue - all indirect expenses

Return on sales = $13500000-(1200000-1600000-400000-1300000)/13500000

= 66.67%

D)return on sales will not change as per formula

(