Question

Brief Exercise 5-10 In 2018, Modder Corporation reported net sales of $250,000, cost of goods sold of $137,500, operating expenses of $50,000, and income tax expense of $20,000. In 2017, it reported net sales of $200,000, cost of goods sold of $114,000, operating expenses of $40,000, other revenu $10,000, and income tax expense of $15,000. Calculate the gross profit and net income for each year. 2018 2017 Gross profit $ Net income Calculate the gross profit margin and profit margin for each year. (Round answers to 1 decimal place, e.g. 5.2%.) 2018 2017 Gross profit margin Profit margin

Answer 1

Ans. 1		2018	2017
	Gross profit	$112,500	$86,000
	Net income	$42,500	$41,000
Ans. 2		2018	2017
	Gross profit margin	45.0%	43.0%
	Profit margin	17.0%	20.5%
	*Working Notes:
	Income Statement
	For the Year of 2018
	Particulars		Amount
	Net sales		$250,000
	Cost of goods sold		-$137,500
	Gross profit		$112,500
	Less: Operating expenses		-$50,000
	Operating income (EBIT)		$62,500
	Less: Income tax expenses		-$20,000
	Net income		$42,500
	Income Statement
	For the Year of 2017
	Particulars		Amount
	Net sales		$200,000
	Cost of goods sold		-$114,000
	Gross profit		$86,000
	Less: Operating expenses		-$40,000
	Operating income (EBIT)		$46,000
	Add: Other revenues and gains		$10,000
	Earninigs before tax		$56,000
	Less: Income tax expenses		-$15,000
	Net income		$41,000
	*Gross profit margin   = Gross profit / Net sales * 100
2018	$112,500 / $250,000 * 100	45%
2017	$86,000 / $200,000 * 100	43%
	*Profit margin   = Net income / Net sales * 100
2018	$42,500 / $250,000 * 100	17%
2017	$41,000 / $200,000 * 100	20.5%