Question

Accounting: What the Numbers Mean 11th edition:

Solution for Chapter 9, Problem 10E

C4 ou past wee years. ume that Campbell's net sales for the first four months of 2015 totaled 7 billion. Calculate an estimated cost of goods sold and gross profit for the A Assume that four months. ulate gross profit, cost of goods sold, and selling price MBI, Inc., had of $600 million for fiscal 2016. The company's gross profit ratio for that year Exercise 9.10 LO 2, 3 sales of $600 m was 31.2%. Required: Calculate the gross profit and cost of goods sold for MBI, Inc., for fiscal 2016. h Assume that a new product is developed and that it will cost $1,634 to manu- facture. Calculate the selling price that must be set for this new product if its gross profit ratio is to be the same as the average achieved for all products for fiscal 2016. c. From a management viewpoint, what would you do with this information? Operating income versus net income If you were interested in evaluating the prof. itability of a company and could have only limited historical data, would you prefer to know operating income or net income for the past five years? Explain your answer. Exercise 9.1 LO 5 Operating income versus net income Refer to the selected financial data (five-year Exercise 9. financial summary) in the Campbell Soup Company annual report in the appendix. LO 5 Required: ere the trend of the operating income (earnings before interest and taxes) data with and of net income (net earnings attributable to Campbell Soup Company) data from rough 2014. Which series of data is more meaningful? Explain your answer. Campbells

Answer 1

Note : Since the data (balance sheet) for last question regarding Exercise 9.10, LO 5 - Comparing trends is not given, we have not answered the same. I have answered the first 2 questions which are Exercise 9.10 LO 2,3 and Exercise 9.10 LO 5 - Question 1.

Answer :

Exercise 9.10 LO 2,3 :

Part A

i) Gross profit ratio = (Gross profit/Sales)*100

(Gross profit/600 Million $)*100 = 31.2

Gross Profit = 187.2 Million $

ii) Cost of Goods sold + Gross Profit = Sales

Cost of goods sold = Sales - Gross profit

Cost of goods sold = 600 - 187.2 = 412.8 Million $

Part B

Gross profit ratio on basis of cost of goods sold = (187.2/412.8)*100 = 45.35%

Hence in order to maintain the same gross profit ratio, selling price should be : 1634 $ + (1634 $ * 45.35%) = 2,377 $

Part C

1. From the management viewpoint, I would use the gross profit ratio to assess the efficiency with which the goods are produced and their ability to generate good amounts of profit. 2. It can also be used by management to assess the financial health of the company and whether the gross profit are sufficient for meeting the expenses.

Exercise 9.10 LO 5 Question 1 :

If I had limited historical data, I would prefer to know the net income rather than the operating income because operating income is the income earned from day-to-day activities and does not take into consideration various important factors such as interest paid on debt or tax paid. On the other hand, net Income also includes such components and hence it shows a better picture.