Chapter 13 Homework x -) ezto.mheducation.com/hm.tpx According to the producer p

Question

Chapter 13 Homework x -) ezto.mheducation.com/hm.tpx According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 4.8 percent between 2012 and 2013. Let's see whether these changes are reflected in the income statermernt of Computer Tycoon Inc. for the year ended December 31, 2013. 2013 2012 Sales Revenue Cost of Goods Sold Gross Profit $118,000 69.000 S147,000 78.700 49,000 S 88.300 10,600 565 Selng, General, and Administrative Expenses interest Expense Income before Income Tax Expense income Tax Expense Net Income 37,800 680 2,500 600 S 8,020 S 20,335 Required: -a. Compute the gross profit percentage for each year. (Round your answers to 1 decimal place.) Percentage 2012 2013 -b. Assuming that the change from 2012 to 2013 is the beginning of a sustained trend, is Computer Tyooon likely to earn more or less gross profit from each dollar of sales in 2014? OMcre Gross Profit Less Gross Profit 2-a. Compute the net profit margin for each year (Round percentage your answers to 1 decimal place.) in

Explanation / Answer

Gross margin ratio is the ratio of gross profit of a business to its revenue. It is a profitability ratio measuring what proportion of revenue is converted into gross profit

Gross margin2012 = Gross profit/ revenue

                            = 68300/ 147000

                            = 0.4646 or 46.46%

Gross margin2013 = Gross profit/ revenue

                            = 49000/ 118000

                            = 0.4153 or 41.53%

Cost of the goods will be reducing further in 2014, so the gross profit % will higher in the year 2014

The net profit margin ratio, also called the return on sales ratio or gross profit ratio, is a profitability ratio that measures the amount of net income earned with each dollar of sales generated by comparing the net income and net sales of a company. In other words, the profit margin ratio shows what percentage of sales are left over after all expenses are paid by the business.

Profit margin ratio2012 = Net Income/ Net sales

                                      = 20335/ 147000

                                      = 0.1383

So profit margin ratio is 0.1383 or 13.83%

Profit margin ratio2013 = Net Income/ Net sales

                                      = 8020/ 118000

                                      = 0.068

So profit margin ratio is 0.068 or 6.8%

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