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Assign_10_-_Solutions_to_Practice_Problem

Major expense categories direct expense of events and

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major expense categories (direct expense of events and NASCAR purse and sanction fees) as a percent of total revenue increased by approximately 2 percentage points. Other direct expenses, however, decreased by about 10%, and general and administrative expenses decreased by almost 1%. Overall, the income from continuing operations increased 8.5 percentage points of total revenue between the two years, which is a favor-able trend. The income from continuing operations as a percent of sales exceeds 29% in the most recent year, which is excellent. Apparently, owning and operating motor speedways is a business that produces high operating profit margins. The high operating margin is probably necessary to compensate for the extensive investment in speedway assets.
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Ex. 15–3 a. SHOESMITH ELECTRONICS COMPANY Common-Sized Income Statement For the Year Ended December 31, 20— Shoesmith Electronics Electronics Industry Company Average Amount Percent Sales ............................................................ $4,200,000 105.0% 105.0% Sales returns and allowances ...................... 200,000 5 .0 5 .0 Net sales ...................................................... $4,000,000 100.0% 100.0% Cost of goods sold ....................................... 2,120,000 53 .0 59 .0 Gross profit .................................................. $1,880,000 47 .0 % 41 .0 % Selling expenses .......................................... $1,160,000 29.0% 24.0% Administrative expenses .............................. 480,000 12 .0 10 .5 Total operating expenses ............................. $1,640,000 41 .0 % 34 .5 % Operating income ........................................ $ 240,000 6.0% 6.5% Other income ............................................... 84,000 2 .1 2 .1 $ 324,000 8.1% 8.6% Other expense ............................................. 60,000 1 .5 1 .5 Income before income tax ........................... $ 264,000 6.6% 7.1% Income expense .......................................... 120,000 3 .0 6 .0 Net income ................................................... $ 144,000 3 .6 % 1 .1 % b. The cost of goods sold is 6 percentage points lower than the industry average, but the selling expenses and administrative expenses are 5 percentage points and 1.5 percentage points higher than the industry average. The combined impact is for net income as a percent of sales to be 2.5 percentage points better than the industry average. Apparently, the company is managing the cost of manufacturing product better than the industry but has slightly higher selling and administrative expenses relative to the industry. The cause of the higher selling and administrative expenses as a percent of sales, relative to the industry, can be investigated further.
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Ex. 15–4 BRYANT COMPANY Comparative Balance Sheet December 31, 2012 and 2011 2012 2011 Amount Percent Amount Percent Current assets ................................ $ 775,000 31.0% $ 585,000 26.0% Property, plant, and equipment ...... 1,425,000 57.0 1,597,500 71.0 Intangible assets ............................ 300,000 12 .0 67,500 3 .0 Total assets .................................... $ 2,500,000 100 .0 % $ 2,250,000
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