Course › 3.6 The Income Statement › Free response
Free response · 3.6 The Income Statement
Exam-style concept-application task: apply the topic to a new business scenario. Suggested time 12–13 minutes.
FRQ — Business decision using financial criteria (3 points)
Summit Print, a small sign-making business, reports the following for two years. Year 1: revenue $420,000; COGS $189,000; operating expenses $168,000; interest $6,000; taxes $11,400. Year 2: revenue $462,000; COGS $226,380; operating expenses $171,000; interest $6,000; taxes $11,700. The owner says, 'Revenue is up 10% — we're doing great.' A manager replies that something is wrong with pricing or materials costs.
(A) Calculate gross profit margin for both years and state what the change indicates. 1 pt
(B) Calculate net profit for both years and the percent change in net profit. Explain whether the owner's 'doing great' claim is supported. 1 pt
(C) Recommend ONE action to improve Summit Print's profitability and explain which margin it would most directly affect and why. 1 pt