Ch14 Homework graded

Ch14 Homework graded - Homework Manager - Financial...

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Question 1: Score 2/2 Question 2: Score 2/2 Your response Correct response Exercise 14.2: Trend Percentages L.O. 1 Compute trend percentages for the following items taken from the financial statements of Lopez Plumbing over a five-year period. Treat 2003 as the base year. State whether the trends are favorable or unfavorable. (Dollar amounts are stated in thousands.) 2007 2006 2005 2004 2003 Sales $81,400 $74,000 $61,500 $59,000 $50,000 Cost of goods sold 58,500 48,000 40,500 37,000 30,000 Ex. 14.2 2007 2006 2005 2004 2003 Sales 163 (10%) % 148 (10%) % 123 (10%) % 118 (10%) % 100 (10%)% Cost of goods sold 195 (10%)% 160 (10%)% 135 (10%)% 123 (10%)% 100 (10%)% The trend of sales is favorable with an increase each year. However, the trend of cost of goods sold is unfavorable, because it is increasing faster than sales. This means that the gross profit margin is shrinking. Perhaps the increase in sales volume is being achieved through cutting sales prices. Another possibility is that the company's purchasing policies are becoming less efficient. Investigation of the cause of the trend in cost of goods sold is essential. Exercise 14.2: Trend Percentages L.O. 1 Compute trend percentages for the following items taken from the financial statements of Lopez Plumbing over a five-year period. Treat 2003 as the base year. State whether the trends are favorable or unfavorable. (Dollar amounts are stated in thousands.) 2007 2006 2005 2004 2003 Sales $81,400 $74,000 $61,500 $59,000 $50,000 Cost of goods sold 58,500 48,000 40,500 37,000 30,000 Ex. 14.2 2007 2006 2005 2004 2003 Sales 163 % 148 % 123 % 118 % 100 % Cost of goods sold 195 % 160 % 135 % 123 % 100 % The trend of sales is favorable with an increase each year. However, the trend of cost of goods sold is unfavorable, because it is increasing faster than sales. This means that the gross profit margin is shrinking. Perhaps the increase in sales volume is being achieved through cutting sales prices. Another possibility is that the company's purchasing policies are becoming less efficient. Investigation of the cause of the trend in cost of goods sold is essential. Your response Correct response Exercise 14.3: Common Size Income Statements L.O. 1 Prepare common size income statements for Pellum Company, a sole proprietorship, for the two years shown below by converting the dollar amounts into percentages. For each year, sales will appear as 100 percent and other items will be expressed as a percentage of sales. (Income taxes are not involved as the business is not incorporated.) Comment on whether the changes from 2006 to 2007 are favorable or unfavorable. 2007 2006 Sales $500,000 $400,000 Cost of goods sold 330,000 268,000 Gross profit $170,000 $132,000 Operating expenses 130,000 116,000 Net income $40,000 $16,000 Ex. 14.3 Common size income statements for 2006 and 2007. 2007
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Ch14 Homework graded - Homework Manager - Financial...

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