Question

Use the following selected information from Farris, LLC to determine the Year 2 and Year 1 common size percents for operating expenses using net sales as the base.

Year 2 Year 1
Net sales $604,200 $487,400
Cost of goods sold $241,900 $137,390
Operating expenses $88,240 $85,040
Net earnings $44,620 $31,620

Answer 1

To determine the common size percents for operating expenses in Year 2 and Year 1, divide the operating expenses by the net sales and multiply by 100%.

Step-by-step explanation:

To determine the Year 2 and Year 1 common size percents for operating expenses using net sales as the base, we need to divide the operating expenses by the net sales and multiply by 100%.

For Year 2, the operating expenses are $88,240 and the net sales are $604,200. So, the Year 2 common size percent for operating expenses would be:

Year 2 common size percent for operating expenses = (operating expenses / net sales) * 100%

Year 2 common size percent for operating expenses = ($88,240 / $604,200) * 100%

For Year 1, the operating expenses are $85,040 and the net sales are $487,400. So, the Year 1 common size percent for operating expenses would be:

Year 1 common size percent for operating expenses = (operating expenses / net sales) * 100%

Year 1 common size percent for operating expenses = ($85,040 / $487,400) * 100%