Westlawn Company discloses the following for the year ended May 31, 2014 — Sales returns 000 — Gross profit from 124 — Total operating expenses

(c) Cost of goods sold,

(d) Gross profit ratio (round to two decimal places).

Analysis Component:

Refer to your answer in part (d). Westlawn experienced a gross profit ratio for the year ended May 31, 2013, of 23%. Is the change in the ratio favourable or unfavourable?

SOLUTION

a) 495,000 – 5,900 – 13,000 = 476,100 net sales

b) 28,000 + 124,000 = 152,000 total operating expenses

c) 476,100 – 124,000 = 352,100 cost of goods sold

d) (124,000/476,100) × 100 = 26.04%

Analysis component:

The change in the gross profit ratio for the year ended May 31, 2014 was an increase of 3.04% (from 23% to 26.04%). This is a favourable change because Westlawn is generating more gross profit per sales dollar that will contribute towards the covering of operating expenses.