Question

Skelton Brush Company sells standard hair brushes. The following information summarizes Skelton's operating activities for 2017. Selling and Administrative Expenses $44,000 Purchases 89,500 Net Sales Revenue 142,300 Merchandise Inventory, January 1, 2017 11,650 Merchandise Inventory, December 31, 2017 14,400 Calculate the operating income for 2017.

Answer 1

The operating income for 2017 is $11,550

Step-by-step explanation:

For computing the net income, first we have to calculate the cost of goods sold which is shown below:

Cost of goods sold = Opening merchandise inventory + Purchase - Closing inventory

= $11,650 + $89,500 - $14,400

= $86,750

Now, we know that if we deduct the cost of goods sold from sales, than gross profit is come.

So, Sales - Cost of goods sold = Gross profit

$142,300 - $86,750 = Gross Profit

Gross Profit = $55,550

Now deduct the Selling and Administrative Expenses from gross profit, so that net income can computed

So, Gross profit - Selling and Administrative Expenses = Net income

$55,550 - $44,000 = Net income

Net income = $11,550

Hence, the operating income for 2017 is $11,550