Question

Income statement data for Huffman Pharmaceuticals are provided below. Income Statements 12/31/201712/31/2016 Sales Revenue$598,000$724,000 Cost of Goods Sold337,000427,000 Gross Profit261,000297,000 Operating Expenses137,000146,000 Operating Income124,000151,000 Other Income (Expense)60,00023,000 Income before Tax184,000174,000 Income Tax Expense71,00076,000 Net Income$113,000$98,000 Using trend analysis, what percentage should be assigned to Gross Profit

Answer 1

Huffman Pharmaceuticals

The percentage that should be assigned to Gross Profit, using trend analysis, is:

= 42%.

Step-by-step explanation:

a) Data and Calculations:

Income Statements 12/31/2017 12/31/2016

Sales Revenue $598,000 $724,000

Cost of Goods Sold 337,000 427,000

Gross Profit 261,000 297,000

Operating Expenses 137,000 146,000

Operating Income 124,000 151,000

Other Income (Expense) 60,000 23,000

Income before Tax 184,000 174,000

Income Tax Expense 71,000 76,000

Net Income $113,000 $98,000

Income Statements 12/31/2017 12/31/2016

Sales Revenue $598,000 $724,000

Cost of Goods Sold 337,000 427,000

Gross Profit 261,000 297,000

Ratio of Gross profit to

Sales Revenue

2017 = $261,000/$598,000 * 100 = 43.65% = 44%

2016 = $297,000/$724,000 * 100 = 41%

Average Gross profit ratio for the two years = 42.5% (44 + 41)/2.

b) Huffman's trend analysis is the use of its past financial performance indices to predict its future financial performances. Past performances are expressed in percentages, forming the basis for predicting and comparing future performances of an entity.