Question 2 (6 Marks)

Case 1 (1 Mark) Complete the income statement below and calculate the gross margin ratio for each separate case a) and b) and comment which ratio is better.

	(a)	(b)
Sales	120,000	160,000
Interest expense	900	4,000
Depreciation expense	1,000	1,200
Income tax	1,420	10,560
Advertising expense	4,000	6,000
Sales discounts	5,000	4,000
Sales commissions	12,000	14,000
Sales returns and allowances	15,000	12,000
Cost of goods sold	75,000	66,000

Answer

Gross profit ratio