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Homework answers / question archive / The data is extracted from the books of Mystery Mountain Lodge at December 31, 2001: Sales ? Cost of Goods Sold 145% of Gross profit Gross Profit 200000 Operational Expenses ? Operational Income 50000 Interest Expense ? Income before Income Tax ? Income Tax (40%) 18000 Income 27000 Required: Calculate the missing values
The data is extracted from the books of Mystery Mountain Lodge at December 31, 2001:
Sales ?
Cost of Goods Sold 145% of Gross profit
Gross Profit 200000
Operational Expenses ?
Operational Income 50000
Interest Expense ?
Income before Income Tax ?
Income Tax (40%) 18000
Income 27000
Required:
Using the statement of earnings, prepare a vertical common size analysis, and comment
Solution :-
Given data are
Gross profit = 200000
operational income = 50000
income tax ( 40 % ) = 18000
income = 27000
cost of goods sold = 145 % of gross profit
= 200000 * 145%
= 290000
Sales = Cost of goods sold + gross profit
= 290000 + 200000
= 490000
Operational Expenses = Gross profit - operational income
= 200000 - 50000
= 150000
Income before income tax = Income + Income tax (40%)
= 27000 + 18000
= 45000
Interest expense = operational income - income before income tax
= 50000 - 45000
= 5000
Statement of earnings and common size analysis
| Particulars | Amount | percent |
| Sales | 490000 | 100% |
| Less :- Cost of goods sold | 290000 | 59.18% |
| Gross Profit | 200000 | 40.82% |
| Less :- Operational Expenses | 150000 | 30.61% |
| Operational Income | 50000 | 10.21% |
| Less :- Interest Expenses | 5000 | 1.02% |
| Income before Income tax | 45000 | 9.19% |
| Less :- Income tax ( 40%) | 18000 | 3.67% |
| Income | 27000 | 5.52% |
Comment :-
By the help of statement of earnings and common size analysis we can see that a major portion of our costs in operational expenses around 30.61% of sales reduces our income , so we have to take effective control in this area to enhance the income for potential growth of the organization.
