Questions 1-5:

Given the following income statement and balance sheet:

Income Statement

Sales revenues	$100
Cost of goods sold
Gross profit	40
Operating expenses	25
Operating income	15
Income tax expense	6
Net income	$ 9

Balance Sheet

Cash	$2		Accounts payable	$13
Accounts receivable	12
			Common stock, $1 par	18
Equipment, net	26		Retained earnings
Total asset	$40		Total liabilities and S/E	$40

Required: Determine the following financial statement amounts:

1. The cost of goods sold was $

2. The income tax expense rate was %

3. Current assets totaled $

4. Retained earnings were $________.

5. Earnings per share were $.50 (Hint: note that the firm issued 18 shares of common stock)

Questions 6-8:

Angels Inc. sells its only product for $5 per unit. The variable cost per unit is $3 and the firm has fixed costs totaling $400.

Required:

6. Compute the number of units Angels must sell in order to break even.

7. Determine sales revenues (in dollars) if the firm plans for $250 in pretax profit.

8. Assume that Angels expects $300 of pretax profit by selling 350 units under its original

assumptions (selling price $5, variable cost $3, and fixed cost of $400). The firm can decrease its fixed costs to $200 if it is willing to increase variable costs to $3.50 per unit.

Should the company change its cost structure?