Memories reported the following condensed income statement data (in thousands) for the year ended August 31, 2012:
Administrative expenses …………………………..$ 515
Cost of goods sold ……………………………………3,100
Income tax expense (30%) …………………………. 428
Net sales ………………………………………………….5,450
Other expenses and losses………………………… 210
Selling expenses…………………………………………. 200
Instructions
(a) Prepare a multiple-step income statement.
(b) Are the expenses classified by nature or function in the list of accounts above?
(c) Calculate the gross profit margin and profit margin.
(d) Assume the marketing department has presented a plan to increase selling expenses (primarily advertising costs) from $200,000 to $300,000. It expects this plan to result in an increase in both net sales and cost of goods sold of 25%. Redo part (c) with these revised numbers and comment on whether this plan has merit. Assume an income tax rate of 30%.
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