SM_Chap013 - Chapter 13 - Measuring and Evaluating...

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Chapter 13 - Measuring and Evaluating Financial Performance Chapter 13 Measuring and Evaluating Financial Performance ANSWERS TO MINI-EXERCISES M13–1 2010 2009 Dollars Percentage Net Sales 100,000 $ 75,000 $ 25,000 $ 33.3% Cost of Goods Sold 58,000 45,000 13,000 28.9% Gross Profit 42,000 30,000 12,000 40.0% Selling, General, and Admin. 9,000 4,500 4,500 100.0% Income from Operations 33,000 25,500 7,500 29.4% Interest Expense 3,000 3,750 (750) -20.0% Income before Income Tax 30,000 21,750 8,250 37.9% Income Tax Expense 9,000 6,525 2,475 37.9% Net Income 21,000 $ 15,225 $ 5,775 37.9% Income Statements Year Ended December 31 LOCKEY FENCING CORPORATION Change in M13–2 Net Sales 100,000 $ 100.0% 75,000 $ 100.0% Cost of Goods Sold 58,000 58.0% 45,000 60.0% Gross Profit 42,000 42.0% 30,000 40.0% Selling, General, and Admin. 9,000 9.0% 4,500 6.0% Income from Operations 33,000 33.0% 25,500 34.0% Interest Expense 3,000 3.0% 3,750 5.0% Income before Income Tax 30,000 30.0% 21,750 29.0% Income Tax Expense 9,000 9.0% 6,525 8.7% Net Income 21,000 $ 21.0% 15,225 $ 20.3% LOCKEY FENCING CORPORATION 2010 2009 Income Statements Year Ended December 31 13-1
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Chapter 13 - Measuring and Evaluating Financial Performance M13–3 The two most significant year-over-year changes, in terms of dollar amounts, are the increase in net sales (+$25,000) and increase in cost of goods sold (+$13,000). In terms of percentages, the two most significant changes are the increases in gross profit (+40%) and selling, general, and administrative expenses (+100%). The dollar amount of net sales could have increased through higher selling prices or greater sales volume. The dollar amount of cost of goods sold could have increased through higher unit costs for inventory or greater sales volume. The percentage increase in gross profit could have increased through higher selling prices or lower unit costs for inventory. Selling, general, and administrative expenses could have increased for a variety of reasons, including greater depreciation (resulting from additional equipment), greater advertising expense (perhaps leading to greater sales volume), greater utilities expense, and greater salaries and wages expense (to support increased sales volume).
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This note was uploaded on 09/04/2011 for the course ECON 161 taught by Professor Jamesbaker during the Fall '11 term at University of Houston.

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SM_Chap013 - Chapter 13 - Measuring and Evaluating...

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