Copyright © 2008, The McGraw-Hill Companies, Inc.
EXERCISES 12.3
Many of the exercises in this section refer to the 2007 fi nancial statements of the Tastee Lard Donut Shoppe, shown here:Tastee Lard Donut Shoppe 2007
Full Year Income StatementI. Revenues
Gross sales $425,913
Less returns $5,000
Net sales $420,913
II. Cost of goods sold
Inventory as of December 31, 2008 $24,700
Net purchases $89,650
Less inventory as of December 31, 2007 $28,315
Cost of goods sold $86,035
III. Gross profi t $334,878
IV. Operating expenses
To tal operating expenses $282,308
V. Net income before insurance and taxes $52,570
VI. Other expenses
Provision for taxes $8,000
Interest $2,500
To tal interest and taxes $10,500
VII. Net income $42,070Ta stee Lard Donut Shoppe
Balance Sheet as of December 31, 2007Assets Liabilities
Current assets: Current liabilities:
Cash $72,700 Accounts payable $22,650
Accounts receivable $8,500 Other $6,700
Inventory $28,315
Total current assets $109,515 Total current liabilities $29,350
Property, plant, and equipment: Long-term liabilities:
Buildings $125,000 Mortgage notes: $129,000
Land $25,000 Other long-term debt $12,500
Other plant and equipment $80,000 Total long term-liabilities $141,500
Total P, P, and E $230,000 Total liabilities $170,850
Equity
Contributed capital $120,000
Retained earnings $48,665
Total equity $168,665
Total assets $339,515 Total liabilities and equity $339,515A. Income Ratios- Last year, Stan’s Taqueria Supply Company had net income of $48,925 on net sales of $328,535. The cost of goods
sold was $142,675.
a. Calculate the company’s net profi t margin.
b. Calculate the company’s gross profi t margin. (Hint: First calculate the gross profi t.)
c. If Stan’s main competitor had roughly the same gross profi t margin but a higher net profi t margin, what can you
say about Stan’s overhead expenses?
Exercises 12.3 515