Questions

What is the percentage increase in sales between $2017$ and $2018?$

What is the percentage increase in Net Income between $2017$ and $2018?$

Assume you are asked why Net Income increased percentage$-$wise more rapidly

than sales. To answer this, take each expense account $($from the cost of goods sold

through taxes$)$ as a percentage of sales for each year and indicate whether it was a

contributor or detractor from the superior growth in Net Income. Remember

declining percentage "costs" contribute to profit. Also, large amounts such as cost

of goods sold have a greater impact than smaller amounts such as depreciation or

interest.

If the cost of goods sold could be reduced to $33$ percent of sales in $2018$ while all

else remained constant $($with the exception of taxes which remain at $35$ percent of

earnings before taxes$),$ what would earnings per share be in $2018?$The chief financial officer of Morton Industries was reviewing the income statement of her firm in preparation for a meeting with the president of the company. The information is shown below.

Morton Industries

Income Statement

For the Years Ended December $31,2017$ & $2018$

$20172018$

Sales $$877,200$ $$923,147$

Cost of goods sold $343,720344,160$

Gross profits $533,480578,987$

Selling and administrative expense $81,00093,237$

Depreciation expense $112,000120,000$

Operating Income $340,480365,750$

Interest Expense $22,33010,000$

Earnings before taxes $318,150355,750$

Taxes $(35\%)111,353124,512$

Net Income $$206,797$ $$231,238$

Preferred stock dividends $-20,000-20,000$

Earnings available to common stockholders $$186,797$ $$211,238$

Shares outstanding $100,000100,000$

Earnings per share $$1\mathrm{.}87$ $$2\mathrm{.}11$

Questions

What is the percentage increase in sales between $2017$ and $2018?$

What is the percentage increase in Net Income between $2017$ and $2018?$

Assume you are asked why Net Income increased percentage$-$wise more rapidly than sales. To answer this, take each expense account $($from the cost of goods sold through taxes$)$ as a percentage of sales for each year and indicate whether it was a contributor or detractor from the superior growth in Net Income. Remember declining percentage $$costs$$ contribute to profit. Also, large amounts such as cost of goods sold have a greater impact than smaller amounts such as depreciation or interest.

If the cost of goods sold could be reduced to $33$ percent of sales in $2018$ while all else remained constant $($with the exception of taxes which remain at $35$ percent of earnings before taxes$),$ what would earnings per share be in $2018?$