Question

Manero Company included the following information in its annual report:

	2019				2018				2017
Sales	$	178,400			$	162,500			$	155,500
Cost of goods sold		115,000				102,500				100,000
Operating expenses		50,000				50,000				45,000
Operating income		13,400				10,000				10,500

In comparison to year 2018, the increase in operating income of 2019 was primarily caused by (ignore taxes):

Multiple Choice

A. the effect of sales growth.

B. the answer cannot be derived from the information provided.

C. the effect of cost of goods sold growth.

D. the effect of margin growth.

Answer 1

Correct answer--------------A. the effect of sales growth..

Explanation

The increase in sales is the reason why income increase. The increase in cost of goods sold is almost in the same proportion to increase in sales and since operating expense remain same the total increase in income is due to increase in sales.The below given statement will also prove this

Common size analysis
	2019		2018
Sales	$     178,400.00	100.0%	$      162,500.00	100.0%
Cost of Goods Sold	$     115,000.00	64.5%	$      102,500.00	63.1%
Gross Profit	$        63,400.00	35.5%	$        60,000.00	36.9%
Operating expense	$        50,000.00	28.0%	$        50,000.00	30.8%
Operating Income	$        13,400.00	7.5%	$        10,000.00	6.2%