Sony Corporation manufactures and markets consumer electronics products. Selected income statement data for 2007 and 2008 follow (amounts in billions of yen):

Required
a. The analyst can sometimes estimate the variable cost as a percentage of sales for a particular cost (for example, cost of goods sold) by dividing the amount of the change in the cost item between two years by the amount of the change in sales for those two years. The analyst can then multiply total sales by the variable-cost percentage to determine the total variable cost. Subtracting the variable cost from the total cost yields the fixed cost component for that particular cost item. Follow this procedure to determine the cost structure (fixed cost plus variable cost as a percentage of sales) for cost of goods sold for Sony.
b. Repeat Part a for selling and administrative expenses.
c. Sony Corporation discloses that it expects sales to grow at the following percentages in future years: Year +1, 12 percent; Year +2, 10 percent; Year +3, 8 percent; Year +4, 6 percent. Project sales, cost of goods sold, selling and administrative expenses, and operating income before income taxes for Sony for Year +1 to Year +4 using the cost structure amounts derived in Parts a and b.
d. Compute the ratio of operating income before income taxes to sales for Year +1 through Year +4.
e. Interpret the changes in the ratio computed in Part d in light of the expected changes insales.

Transcribed Image Text:

2007 18,296 5,890) 2008 Sales Cost of Goods Sold Selling and Administrative Expenses 1,788) Operating Income before Income Taxes 18 Y8,871 (6,290) (1,714) 1867