Memories Corporation reported the following condensed income statement data (in thousands) for the year ended August 31, 2012:

Administrative expenses ................................$ 515

Cost of goods sold ..........................................3,100

Income tax expense (30%) ............................... 428

Net sales ..........................................................5,450

Other expenses and losses.............................. 210

Selling expenses................................................. 200

Instructions

(a) Prepare a multiple-step income statement.

(b) Are the expenses classified by nature or function in the list of accounts above?

(c) Calculate the gross profit margin and profit margin.

(d) Assume the marketing department has presented a plan to increase selling expenses (primarily advertising costs) from $200,000 to $300,000. It expects this plan to result in an increase in both net sales and cost of goods sold of 25%. Redo part (c) with these revised numbers and comment on whether this plan has merit. Assume an income tax rate of 30%.