In its income statement for the year ended June 30, 2009, The Clorox Company reported the following condensed data (dollars in millions).
Selling and Research and administrative expenses .... $ 715
Development expense ................ $ 114
Net sales ................... 5,450
Income tax expense ................ 274
Interest expense ................. 161
Other expense .................... 46
Advertising expense ................ 499
Cost of goods sold ................ 3,104
Instructions
(a) Prepare a multiple-step income statement.
(b) Calculate the gross profit rate and the profit margin ratio and explain what each means.
(c) Assume the marketing department has presented a plan to increase advertising expenses by $340 million. It expects this plan to result in an increase in both net sales and cost of goods sold of 25%. Redo parts (a) and (b) and discuss whether this plan has merit. (Assume a tax rate of 34%, and round all amounts to whole dollars.)