Problem 3-6 (Algo) Profitability ratios [LO3-2]
Dr. Zhivago Diagnostics Corporation's income statement for 20X1 is as follows:
Sales
$ 2,920,000
Cost of goods sold
2,250,000
Gross profit
$ 670,000
Selling and administrative expense
304,000
Operating profit
$ 366,000
Interest expense
54,500
Income before taxes
$ 311,500
Taxes (30%)
93,450
Income after taxes
$ 218,050
a. Compute the profit margin for 20X1.
Note: Input the profit margin as a percent rounded to 2 decimal places.
Profit margin
7.46 %
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?
Note: Input the profit margin as a percent rounded to 2 decimal places.
Income after taxes
Profit margin
20X2
%
