Dr. Zhivgo Diagnostics Corp. income statements for 20X1 are as follows: Sales $2,790,000 Cost of goods sold

Question:

Dr. Zhivàgo Diagnostics Corp. income statements for 20X1 are as follows:
Sales $2,790,000
Cost of goods sold 1,790,000
Gross profit 1,000,000
Selling and administrative expense 302,000
Operating profit 698,000
Interest expense 54,800
Income before taxes 643,200
Taxes (30%) 192,960
Income after taxes $ 450,240
a. Compute the profit margin for 20X1.
b. Assume that in 20X2, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Assume a tax rate of 30 percent on income before taxes. What is income after taxes and the profit margin for 20X2?