Assume you are the vice president of operations for HG Lang and you are preparing for a meeting to discuss the 2015 financial results with Adrienne Aiello, the company president.

HG Lang Designs operates an exclusive bridal boutique in Manhattan. All gowns are designed by Lang but are manufactured by various small firms in France and Italy.

Required
a. Prepare a vertical analysis of the income statements for 2014 and 2015. Based on this analysis, what is Adrienne Aiello likely to focus on in your upcoming meeting?
b. During 2015, the company had price increases from its European gown manufacturers. Adrienne Aiello has asked you to estimate what the gross margin would have been for 2015 if the price increase had not occurred.

Transcribed Image Text:

HG Lang Designs Balance Sheets December 31, 2015 December 31, 2014 Assets Current assets: Cash Accounts receivable Inventory Other curret assets Total current assets $ 65,000 352,000 1,795,000 62,000 2,274,000 1,611,000 $3,885,000 $ 88,000 333,200 1,764,000 65,000 2,250,200 1,611,000 3,861,200 Buildings, furniture,and fixtures, net Total assets Liabilities and Stockholders'Equity Current liabilities: 73,000 89,000 13,000 175,000 311,000 65,200 110,000 Accounts payable Bank loan payable Other accrued payables Total current liabilities 186,200 366 Long-term debt Total liabilities Stockholders' equity: Common stock Retained earnings Total stockholders' equity 1,248,000 2,151,000 3,399,000 1,248,000 3,309 Total liabilities and stockholders'equity HG Lang Designs Income Statements December 31 2015 December 31, 2014 Net sales Cost of goods sold Gross margin Operating expenses: $20,632,000 14,442,000 6,190,000 $19,282,000 12,533,000 6,749,000 578,000 2,314,000 2,892,000 3,857,000 Selling expenses 640,000 2,682,000 3,322,000 2,868,000 29,000 2,839,000 994,000 S 1,845,000 General and administrative expenses Total operating expenses Operating income Interest expense Income before taxes Income taxes Net income 38,000 3,819,000 1,337,000 2,482,000