The following information was taken from the financial statements of Lawson Company: 2017 2016 Gross profit on sales $ 900 , 000 $ 840 , 000 Income before income taxes 280 , 000 230 , 000 Net Income. 240 , 000 216 , 0 Net income as a percentage of net sales 8 % 9 % \begin{array}{lcc} & 2017 & 2016\ ext { Gross profit on sales } & \$ 900,000 & \$ 840,000 \ ext { Income before income taxes } & 280,000 & 230,000 \ ext { Net Income. } & 240,000 & 216,0 \ ext { Net income as a percentage of net sales } & 8\% & 9\%\end{array} Gross profit on sales Income before income taxes Net Income. Net income as a percentage of net sales 2017 $900 , 000 280 , 000 240 , 000 8% 2016 $840 , 000 230 , 000 216 , 0 9% Instructions(a) Compute the net sales for each year.(b) Compute the cost of goods sold in dollars and as a percentage of net sales for each year.(c) Compute operating expenses in dollars and as a percentage of net sales for each year. (Income taxes are not operating expenses).

Question

The following information was taken from the financial statements of Lawson Company:   2017 2016  Gross profit on sales  $ 900 , 000 $ 840 , 000  Income before income taxes  280 , 000 230 , 000  Net Income.  240 , 000 216 , 0  Net income as a percentage of net sales  8 % 9 % \begin{array}{lcc} & 2017 & 2016\ 	ext { Gross profit on sales }  &  \$ 900,000  &  \$ 840,000 \ 	ext { Income before income taxes }  &  280,000  &  230,000 \ 	ext { Net Income. }  &  240,000  &  216,0 \	ext { Net income as a percentage of net sales } & 8\% & 9\%\end{array}  Gross profit on sales   Income before income taxes   Net Income.   Net income as a percentage of net sales  ​ 2017 $900 , 000 280 , 000 240 , 000 8% ​ 2016 $840 , 000 230 , 000 216 , 0 9% ​   Instructions(a) Compute the net sales for each year.(b) Compute the cost of goods sold in dollars and as a percentage of net sales for each year.(c) Compute operating expenses in dollars and as a percentage of net sales for each year. (Income taxes are not operating expenses).

Muhammad Aiman · Accepted Answer

Final Answer :  (a) To calculate net sales divide the net income by the percentage of net income to net sales.    Net Sales  2017 $ 240 , 000 ÷ 8 % = $ 3 , 000 , 000 2016 $ 216 , 000 ÷ 9 % = $ 2 , 400 , 000 	ext { Net Sales } \quad \frac{2017}{\$ 240,000 \div 8 \%=\$ 3,000,000} \quad \frac{2016}{\$ 216,000 \div 9 \%=\$ 2,400,000}  Net Sales  $240 , 000 ÷ 8% = $3 , 000 , 000 2017 ​ $216 , 000 ÷ 9% = $2 , 400 , 000 2016 ​   (b) Using the net sales information from (a) and the gross profits given it is possible to calculate the cost of goods sold.   2017 2016  Net Sales  $ 3 , 000 , 000 $ 2 , 400 , 000  Less: Gross profit  900 , 000 $ 840 , 000  Cost of goods sold  $ 2 , 100 , 000 $ 1 , 560 , 000 %  of net sales  70 % 65 % \begin{array}{lrr} & 2017 & 2016\	ext { Net Sales }  &  \$ 3,000,000  &  \$ 2,400,000 \	ext { Less: Gross profit }  &  900,000 &  \$ 840,000 \	ext { Cost of goods sold }  &  \$2,100,000 & \$1,560,000\\\% 	ext { of net sales }  &  70 \%  &  65 \%\end{array}  Net Sales   Less: Gross profit   Cost of goods sold  %  of net sales  ​ 2017 $3 , 000 , 000 900 , 000 $2 , 100 , 000 70% ​ 2016 $2 , 400 , 000 $840 , 000 $1 , 560 , 000 65% ​    (c) 2017 2016  Gross profit  $ 900 , 000 $ 840 , 000  Less: Income before income taxes  280 , 000 230 , 000  Operating Expenses  $ 620 , 00 $ 610 , 000 %  of net sales  20.7 % 25.4 % \begin{array}{lrr} & 2017 & 2016\	ext { Gross profit }  &  \$ 900,000  &  \$ 840,000 \	ext { Less: Income before income taxes }  & 280,000  & 230,000\	ext { Operating Expenses }  & \$620,00 & \$610,000 \\\% 	ext { of net sales } &  20.7 \%  &  25.4 \%\end{array}  Gross profit   Less: Income before income taxes   Operating Expenses  %  of net sales  ​ 2017 $900 , 000 280 , 000 $620 , 00 20.7% ​ 2016 $840 , 000 230 , 000 $610 , 000 25.4% ​

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