Ratio Analysis The following information was taken from Logsden Manufacturing's trial balances as of December 31,...
Ratio Analysis
The following information was taken from Logsden Manufacturing's trial balances as of December 31, 2018, and December 31, 2019.
|
12/31/2019 |
12/31/2018 |
|||
|
Accounts receivable |
$14,000 |
$18,000 |
||
|
Accounts payable |
22,000 |
15,000 |
||
|
Cost of goods sold |
144,000 |
127,000 |
||
|
Sales |
279,000 |
239,000 |
||
|
Sales returns |
12,000 |
10,000 |
||
|
Retained earnings |
47,000 |
16,000 |
||
|
Dividends |
3,000 |
2,000 |
||
|
Income from operations |
25,000 |
16,000 |
||
|
Net income |
19,000 |
18,000 |
||
2. Assuming that all of the operating expenses are fixed (or, won't change as sales increase or decrease), what will be the operating margin percentage if sales increase by 25%? Round your answer to two decimal places.
Operating margin =
Homework Answers
Answer
Operating profit % is:
2018 = 26.23%
2019 = 49.81%
Explanation
Operating expense (OE) is computed using the equation given below:
OE = Sales - Sales return - Cost of goods sold - Income from operation
2018 = $239,000 - $10,000 - $127,000 - $16,000
= $86,000
2019 = $279,000 - $12,000 - $144,000 - $25,000
= $98,000
Changed Operating income is:
2018 = {$239,000 + 25% of $239,000} - $10,000 - $127,000 - $86,000
= $298,750 - $10,000 - $127,000 - $86,000
= $75,750
2019 = {$279,000 + 25% of $279,000} - $12,000 - $144,000 - $25,000
= $348,750 - $12,000 - $144,000 - $25,000
= $167,750.
Operating margin % = Operating income / Net sales
2018 = $75,750 / {$298,750 - $10,000}
= 26.23%
2019 = $167,750 / {$348,750 - $12,000}
= 49.81%
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