Question

Kellogg Company (K) produces, markets, and distributes cereal and food products including Cheez-It, Coco Pops, Rice Kra, and phys. mentions) were adapted from recent financial statements Year 1 Year 2 Sale $13,014 $12.923 (8,259) (7 901) Cost of goods Group $4,755 $5,022 Send ministrative expenses (3,360 (3,076) $ 1,395 $ 1.946 Operating income General Mills Inc. (GIS) produces, markets, and distributes cereal and food products including Cheerios, Wheaties, Cocoa Puffs, Yoplait, and Pillsbury branded products. The owing partial income statements (in millions) were adapted from recent financial statements Year 1 Year 2 515,620 $15,740 ost of goods sold (10,056) (10,313) 55,554 $5.427 Gross profit Selling and administrative expenses (2.801) $ 2,763 (2,753) $ 2,674 Operating income Kellogg's operating income as a percent of sales was 10,7% compared to General Mills 17.7%. In Year 2, Kellogg's operating income as a percentage of sales by 4. however, General Mine Income as a percentage of sales by 0.7. This difference was caused by Kellogg's of 2.4% in cost of goods sold compared to Generalis of 1.1% in cost of goods sold. In Year 2, Kellogg's selling and administrative expenses by 2.0 compared to General of 0.4%. Thus, Kellogg's Year 2 operating performance Improved relative to General Mills' operating performance Previous

Answer 1

Kellogg's operating income as a percent of sales was 10.7% compared to General Mills' 17.7%. In Year 2, Kellogg's operating income as a percent of sales increased (note 1) by 4.4%; however, General Mills' income as a percent of sales decreased (note 2) by 0.7%. The difference was caused by Kellogg's decrease (note 3) of 2.4% in cost of goods sold compared to General Mills increase (note 4) of 1.1% in cost of goods sold. In Year 2, Kellogg's selling and administrative expenses decreased (note 5) by 2.0% compared to General Mills' decrease (note 6) of 0.4%. Thus, Kellogg's Year 2 operating performance has (note 7)improved relative to General Mills' operating performance.

Note 1:

Kellogg's

Particulars	Year 1	Year 2	Remarks
Sales	13,014	12,923	(a)
Operating income	1,395	1,946	(b)
Operating income as a percentage of sales	10.7%	15.1%	(b/a)
Increase/(decrease)		4.4%	(year 2 less year 1 i.e. (15.1%-10.7%))

Note 2:

General Mills'

Particulars	Year 1	Year 2	Remarks
Sales	15,620	15,740	(a)
Operating income	2,763	2,674	(b)
Operating income as a percentage of sales	17.7%	17.0%	(b/a)
Increase/(decrease)		-0.7%	(year 2 less year 1 i.e. (17.0%-17.7%))

Note 3:

Kellogg's

Particulars	Year 1	Year 2	Remarks
Sales	13,014	12,923	(a)
Cost of goods sold	8,259	7,901	(b)
Cost of goods sold as a percentage of sales	63.5%	61.1%	(b/a)
Increase/(decrease)		-2.4%

Note 4:

General Mills'

Particulars	Year 1	Year 2	Remarks
Sales	15,620	15,740	(a)
Cost of goods sold	10,056	10,313	(b)
Cost of goods sold as a percentage of sales	64.4%	65.5%	(b/a)
Increase/(decrease)		1.1%	(year 2 less year 1 i.e. (65.5%-64.4%))

Note 5:

Kellogg's

Particulars	Year 1	Year 2	Remarks
Sales	13,014	12,923	(a)
Selling and administrative expenses	3,360	3,076	(b)
Selling and administrative expenses as a percentage of sales	25.8%	23.8%	(b/a)
Increase/(decrease)		-2.0%	(year 2 less year 1 i.e. (23.8%-25.8%))

Note 6:

General Mills'

Particulars	Year 1	Year 2	Remarks
Sales	15,620	15,740	(a)
Selling and administrative expenses	2,801	2,753	(b)
Selling and administrative expenses as a percentage of sales	17.9%	17.5%	(b/a)
Increase/(decrease)		-0.4%	(year 2 less year 1 i.e. (17.5%-17.9%))

Note 7:

Since the Operating income as a percentage of sales, Cost of goods sold as a percentage of sales and Selling and administrative expenses as a percentage of sales of Kellogg has improved in comparison to General Mills, Kellogg's Year 2 operating performance has improved relative to General Mills' operating performance.

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