Question

The following income statements were drawn from the annual reports of the Denver Company and the Reno Company: Denver* Reno* Net sales $ 33,200 $ 86,900 Cost of goods sold (15,440 ) (63,050 ) Gross margin 17,760 23,850 Less: Operating exp. Selling and admin. exp. (11,760 ) (15,348 ) Net income $ 6,000 $ 8,502 *All figures are reported in thousands of dollars. Required a-1. Compute the gross margin percentages and return-on-sales ratios of Denver and Reno. (Round your answers to the nearest whole number.)

Answer 1

1. Gross margin percentage:

For Denver and the Reno is 53% and 27%

2. Return on sales ratio:

For Denver and the Reno is 18% and 10%

Step-by-step explanation:

1. The formula to compute the gross margin percentage is shown below:

Gross margin percentage = (Gross margin) ÷ (Net sales) × 100

For Denver = ($17,760 ÷ $33,200) × 100 = 53%

For Reno = ($23,850 ÷ $86,900) × 100 = 27%

2. The formula to compute the return-on-sales ratios is shown below:

Return-on-sales ratio = (Net income) ÷ (Net sales) × 100

For Denver = ($6,000 ÷ $33,200) × 100 = 18%

For Reno = ($8,502 ÷ $86,900) × 100 = 10%