Flingers Inc. reveals the following information in their annual report for FY 2017. Earnings and Expenses Sales $10,000,000 Cost of goods sold $5,000,000 Pretax earnings $500,000 Selected Balance Sheet Items Merchandise inventory $80,000 Total assets $2,000,000 Upper management plans to cut cost of goods sold by 5% for the coming year but retain the same sales. What will Flingers' profit margin be for 2018?

Question

Clarence Chase

Business

11 September, 22:05

Flingers Inc. reveals the following information in their annual report for FY 2017. Earnings and Expenses Sales $10,000,000 Cost of goods sold $5,000,000 Pretax earnings $500,000 Selected Balance Sheet Items Merchandise inventory $80,000 Total assets $2,000,000 Upper management plans to cut cost of goods sold by 5% for the coming year but retain the same sales. What will Flingers' profit margin be for 2018?

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Kian Martin · Answer 1

What will Flingers' profit margin be for 2018?

Profit Margin $750,000

Explanation:

These are the results of 2017 without changes in the cost of goods.

Income Statement 2017

Sales 10,000,000

Cost of Goods Sold - 5,000,000

Net Income 5,000,000

Non Operating Expenses - 4,500,000

Net Income After Taxes $500,000 5%

When the improvements are made, the company has an efficiency in the cost of goods, it will report a better profit margin.

Income Statement 2018

Sales 10,000,000

Cost of Goods Sold - 4,750,000

Net Income 5,250,000

Non Operating Expenses - 4,500,000

Net Income After Taxes 750,000 7,5%