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# selling, administrative, general, and interest expenses

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Predicted Profits
Details: Con Agra's 2000 income statement showed the following, (in millions)

Net Sales - \$25,386
Costs of goods sold - 21,206
Selling, administrative & general purpose expenses - 2,888
Interest expense - 303
Income before income tax and non-recurring charges - 989

Suppose the cost of goods sold is the only variable cost; selling, administrative, general, and interest expenses are fixed with respect to sales.

Assume that Con Agra had a 10% increase in sales in 2001 and that there was no change in costs except for increases associated with the higher volume of sales. Compute the predicted 2001 operating profit for Con Agra and the percentage increase in operating profit.

#### Solution Preview

Hello!
We know that selling, administrative, general, and interest expenses are fixed with respect to sales. This implies that, although sales had a 10% increase, these costs remained constant. So we have that, for 2001:

Selling, ...

#### Solution Summary

This job assesses selling, administrative, general, and interest expenses.

\$2.19

## Classification of Accounts/Accounting Concepts

E6: The following data pertain to a sole proprietorship:

Sales, \$405,000
Cost of Goods Sold, \$220,000
Selling Expenses, \$90,000
Interest Expense, \$4,000
Interest Income, \$3,000

1. Prepare a condensed single-step income statement.
2. Prepare a condensed multistep income statement.

E7: A condensed single-step income statement for Harrington Housewares Company appears below. Present the information in a condensed multistep income statement, and tell what insights can be obtained from the multistep form as opposed to the single-step form.

Harrington Housewares Company
Income Statement
For the Year Ended June 30, 20xx

Revenues
Net sales \$1,197,132
Interest income 5,720
Total revenues \$1,202,852

Cost and expenses
Cost of goods sold \$777,080
Selling expenses 203,740
Interest expense 13,560
Total costs and expenses
1,095,068
Net income 107,784

E8: The following accounts and balances are from the general ledger of Swan Company.
--Compute the (1) working capital and (2) current ratio.

Accounts Payable \$49,800
Accounts Receivable 30,600
Cash 4,500
Current Portion of long-Term Debt, 30,000
Long-Term Investments 31,200
Marketable Securities 37,800
Merchandise Inventory 76,200
Notes Payable- 90 days 45,000
Notes Payable- 2 years 60,000
Notes Receivable- 90 days 78,000
Notes Receivable- 2 years 30,000
Prepaid Insurance 1,200
Property, Plant, and Equipment 180,000
C. Swan, Capital 84,900
Salaries Payable 2,550
Supplies 1,050
Property Taxes Payable 3,750
Unearned Revenue 2,250

E9: The following end-of-year amounts are from the financial statements of Laliberte Company:

Total assets, \$852,000; Total liabilities, \$344,000; Owner's equity, \$508,000; Net sales, \$1,564,000; Cost of goods sold, \$972,000; Operating expenses, \$404,000; and Withdrawals, \$80,000. During the past year, total assets increased by \$150,000. Total owner's equity was affected only by net income and withdrawals.

--Compute (1) profit margin, (2) asset turnover, (3) return on assets, (4) debt to equity ratio, and (5) return on equity.

E10: A simplified balance sheet and income statement for a sole proprietorship appear below. Total assets and owner's equity at the beginning of 20xx were \$360,000 and \$280,000, respectively.

1. Compute the following liquidity measures: (a) working capital and (b) current ratio.
2. Compute the following profitability measures: (a) profit margin, (b) asset turnover, (c) return on assets, (d) debt to equity ratio, and (e) return on equity.

Balance Sheet
December 31, 20xx

Assets
Liabilities
Current assets \$100,000
Investments 20,000
Property, plant, and equipment
293,000
Intangible assets 27,000

Total assets

\$440,000
Current liabilities \$40,000
Long-term liabilities 60,000
Total liabilities \$100,000

Owner's Equity
P. Cavafy, Capital \$340,000
Total liabilities and owner's equity
\$440,000

Income Statement
For the Year Ended December 31, 20xx

Net sales
Cost of goods sold
Gross margin
Operating expenses
Net income \$820,000
500,000
320,000
270,000
50,000

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