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