Question

Assume a company's Income Statement for Year 12 is as follows: Year 12 in 000s Income Statement Data Net Revenues from Footwear Sales Cost of Pairs Sold Warehouse Expenses Marketing Expenses Administrative Expenses Operating Profit (Loss) Interest Income (expenses) Pre-tax Profit (Loss) Income laxes Net Profit (Loss $300,000 190,000 15,000 40,000 8,000 47,000 (10,000) 37,000 11,100 $25,900 Based on the above data, which of the following statements is false? Interest expenses are 3.3% of net revenues. Warehouse expenses are 5.0% of net revenues. Administrative expenses are 3.9% of net revenues. Marketing costs are 13.3% of net revenues. Cost of pairs sold are 63.3% of net revenues.

Answer 1

Solution:

Details provided below:

The proportion of any expense in relation to revenue can calculated with the use of following formula: Percentage of net revenues = Expense amount / Revenue * 100

Table showing calculation for all the options:

Expense	Expense amount X	Net revenue Y	Percentage of net revenues = X / Y * 100
Cost of pairs sold	190,000	300,000	63.3%
Warehouse expense	15,000	300,000	5.0%
Administrative expense	8,000	300,000	2.6% ( this value is given as 3.9%) False
Interest expense	10,000	300,000	3.3%
Marketing expense	40,000	300,000	13.3%

The administrative expense 2.6% statement is calculated above 3.9%.

So, the false statement is Administrative statement.