Author Question: Analyze the common size income statements below for Coast Company: (in percent) 2015 2014 Net ... (Read 58 times)

anshika · **on:** Jul 6, 2018

Analyze the common size income statements below for Coast Company:

(in percent) 2015 2014
Net sales 100 100
COGS 62 65
Gross margin 38 35
Research and development 9 5
Selling, general and administrative 11 17
Restructuring, asset

impairments and other charges 1 8
Income/(loss) from operations 17 5
Interest expense (3) (1)
Income/(loss) before taxes 14 4
Provision for/(benefit from) income taxes 4 1
Net income/(loss) 10 3

What will be an ideal response?

Question 2

At the end of the fiscal period, the debit balance in the Change Fund is reported as a(n)
a. revenue on the income statement.
b. asset on the balance sheet.
c. expense on the income statement.
d. liability on the balance sheet.
e. contra asset on the balance sheet.

bblaney · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

Gross profit margin has increased three percent from 2014 to 2015 . Either selling prices have increased and/or cost of goods sold has decreased. If there are fixed costs within the cost of goods sold category then an increase in volume of sales may be responsible for the increase in gross profit margin.

Operating profit margin has increased significantly.The increase is due to not only the increase in gross profit margin, but alsosignificant cost cuts in selling, general and administrative (SG&A) expenses and restructuring and impairment charges. Reducing waste in SG&A expenses would constitute a beneficial cut; however, if these areas have been cut only for the purpose of increasing earnings, this could be highly detrimental to the long-term success of the firm. Cuts in advertising may result in lower sales. If layoffs have been used to reduce operating expenses, lower morale in the work force may result in lower quality and lower sales. Restructuring could explain how the firm was able to lower selling, general and administrative expenses. It is noteworthy that even though the firm has cut many costs, research and development expenses have more than doubled from 2014 to 2015 relative to sales. It is good for the firm to focus on new and innovative products.

Net profit has increased as a result of the increased operating profit. Interest expense has increased which implies higher debt or higher interest rates. Income tax expense has risen which is expected since the firm is more profitable.

Answer to Question 2

b