Profitability Analysis Ashley Enterprises reports the following information on i
ID: 2537911 • Letter: P
Question
Profitability Analysis Ashley Enterprises reports the following information on its income statement: Net sales Cost of goods sold Selling expenses $520,000 Administrative expenses $100,000 110,000 90,000 290,000 Other income 120,000 Other expense Required Calculate Ashley's gross profit percentage and return on sales ratio. Ashley is planning to add a new product and expects net sales to be $30,000 and cost of goods to be $25,000. No other income or expenses are expected to change. How will this affect Ashley's gross profit percentage and return on sales ratio? (Round all answers to 1 decimal place.) Gross Profit Percentage 44.2 % Return on Sales 0.05 % IF NEW PRODUCT IS MADE Gross Profit Percentage x% Return on Sales Check Partially correct Marks for this submission: 1.00/4.00.Explanation / Answer
Answer:
Gross Profit = Net Sales – Cost of Goods Sold
Gross Profit = $520,000 - $290,000
Gross Profit = $230,000
Net Income = Gross Profit – Selling Expenses – Administrative Expenses – Other Expenses + Other Income
Net Income = $230,000 - $120,000 - $100,000 - $90,000 + $110,000
Net Income = $30,000
Return on Sales = Net Income / Net Sales *100
Return on Sales = $30,000 / $520,000 *100
Return on Sales = 5.77%
New Product Is Made:
New Sales = Old Sales + Increased Sales
New Sales = $520,000 + $30,000
New Sales = $550,000
New Cost of Goods Sold = Old Cost of Goods Sold + Increased Cost of Goods Sold
New Cost of Goods Sold = $290,000 + $25,000
New Cost of Goods Sold = $315,000
New Gross Profit = New Sales – New Cost of Goods Sold
New Gross Profit = $550,000 - $315,000
New Gross Profit = $235,000
Net Income = New Gross Profit – Selling Expenses – Administrative Expenses – Other Expense + Other Income
Net Income = $235,000 - $120,000 - $100,000 - $90,000 + $110,000
Net Income = $35,000
Gross Profit Percentage = New Gross Profit / New Sales *100
Gross Profit Percentage = $235,000 / $550,000 *100
Gross Profit Percentage = 42.73%
Return on Sales = Net Income / New Sales *100
Return on Sales = $35,000 / $550,000 *100
Return on Sales = 6.36%
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