Question

Gross margin Operating profit Revenues Income tax rate $ 180,000 $ 58,000 $ 625,000 32 Required: (a) Compute the cost of services sold. (b) Compute the total marketing and administrative costs. (c) Compute net income. BI YA - A - IX E 33 13 x x - D R N V Nov 11 12pt

Answer 1

1]
a]	Cost of services sold = Revenues-Gross margin = 625000-180000 =	$        4,45,000
b]	Total marketing and administrative costs = Gross margin-Operating profit = 180000-58000 =	$      1,22,000
c]	Net income = Operating profit*(1-tax rate) = 58000*(1-32%) =	$           39,440
2]		Current Year	Previous Year
	Sales	$3,600,000	$4,000,000
	Cost of goods sold$	$2,000,000	$2,700,000
	Average inventory	$372,000	$352,000
	Inventory, end of year	$372,000	$347,000
a]
i]	Inventory turnover = Cost of goods sold/Average inventory	5.4	7.7
ii]	Number of days sales in inventory = 365/Inventory turnover =	67.89	47.59
b]	The inventory turnover has deteriorated during
	the current year, with the result number of days
	sales in inventory has increased.
	It indicates inefficiency in management of
	inventory.