At year-end, Produce Palace had Sales Revenue of $765,000. Its Cost of Goods Sold was 40% of Sales Revenue. Operating expenses for the year included $135,000 of Selling Expenses, $102,000 of General and Administrative Expenses. Merchandise Inventory was $53,000, and Prepaid Expenses were $23,000.
a) What is the gross margin and operating income for this Produce Palace, Inc. at year- end using a traditional income statement approach?
b) If the Sales Revenue is estimated to increase by 10% for the upcoming year due to consumers wanting to eat a healthier diet, what would the gross margin and net income be, assuming that the Cost of Goods percentage remains the same at 40% of sales revenue, using a traditional income statement approach?

Question

At year-end, Produce Palace had Sales Revenue of $765,000. Its Cost of Goods Sold was 40% of Sales Revenue. Operating expenses for the year included $135,000 of Selling Expenses, $102,000 of General and Administrative Expenses. Merchandise Inventory was $53,000, and Prepaid Expenses were $23,000. 
a) What is the gross margin and operating income for this Produce Palace, Inc. at year- end using a traditional income statement approach? 
b) If the Sales Revenue is estimated to increase by 10% for the upcoming year due to consumers wanting to eat a healthier diet, what would the gross margin and net income be, assuming that the Cost of Goods percentage remains the same at 40% of sales revenue, using a traditional income statement approach?

Quizplus · Accepted Answer

The Answer of At year-end, Produce Palace had Sales Revenue of $765,000. Its Cost of Goods Sold was 40% of Sales Revenue. Operating expenses for the year included $135,000 of Selling Expenses, $102,000 of General and Administrative Expenses. Merchandise Inventory was $53,000, and Prepaid Expenses were $23,000. 
a) What is the gross margin and operating income for this Produce Palace, Inc. at year- end using a traditional income statement approach? 
b) If the Sales Revenue is estimated to increase by 10% for the upcoming year due to consumers wanting to eat a healthier diet, what would the gross margin and net income be, assuming that the Cost of Goods percentage remains the same at 40% of sales revenue, using a traditional income statement approach?

At Year-End, Produce Palace Had Sales Revenue of $765,000