1.-Hull Company reports the following data: Based on the above data, what can be said about the...

Question:

1.-Hull Company reports the following data:

Year Total Operating Expenses to Net Sales
2015 17%
2016 20%
2017 27%
     2017 Industry Average 15%

Based on the above data, what can be said about the Hull Company? (select one)

A.)The company is losing control of operating expenses

B.)The company is increasing sales over time

C.)The company is doing better than the industry average.

D.)The company is controlling operating expenses.

2.-Reimer Company reports the following data:

2017 2016
Sales 100% 100%
Cost of Goods Sold 27% 17%
Gross Profit 73% 83%
Operating Expenses 35% 35%
Net Income 38% 48%

When evaluating the results of operations, what can be said about Reimer Company? (select one)

A.)Using vertical analysis, the company's profitability declined in 2017.

B.)Using horizontal analysis, the company's profitability declined in 2016.

C.)Using vertical analysis, the company's profitability declined in 2016.

D.)Using horizontal analysis, the company's profitability declined in 2017.

Operating Income

Operating income is a measure of a company's profitability from past transactions and events for a specific period. For manufacturing and merchandising companies, the preparation of an income statement starts off with the calculation of sales revenue from products sold to customers. The cost of goods sold is subsequently deducted from sales revenue to derive gross margin. Period expenses are then deducted from gross margin to determine operating income.

Answer and Explanation:

1.

Answer: A

As operating expenses to net sales has continuously increased, the company seems to be losing control of operating expenses.

2.

Answer: D

The company's net income has decreased horizontally from 2016 to 2017 thus the answer is D.


Learn more about this topic:

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Operations of an Income Statement

from Accounting 101: Financial Accounting

Chapter 8 / Lesson 5
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