Question

[The following information applies to the questions displayed below.]

Company	A				B				C				D
Sales	$	80,000			$	180,000			$	120,000			$	100,000
Cost of goods sold		48,000				135,000				72,000				60,000
Gross margin		32,000				45,000				48,000				40,000
Operating expenses		9,600				12,600				10,800				10,000
Net income	$	22,400			$	32,400			$	37,200			$	30,000

Based on common-sized income statements, which of the companies spent the least on operating expenses in relationship to its sales?

Multiple Choice

A Company A

B Company B

C Company C

D Company D

Answer 1

Correct answer---(B) Company B

Company B spend 7% of sales as operating expense. All companies may have spended lesser amount but in comparison to sales they have spended more than Company B

Common size income Statement
Company	A		B		C		D
	Amount	%	Amount	%	Amount	%	Amount	%
Sales	$ 80,000.00	100%	$     1,80,000.00	100%	$ 1,20,000.00	100%	$ 1,00,000.00	100%
Cost of goods sold	$ 48,000.00	60%	$     1,35,000.00	75%	$    72,000.00	60%	$     60,000.00	60%
Gross margin	$ 32,000.00	40%	$        45,000.00	25%	$    48,000.00	40%	$     40,000.00	40%
Operating expenses	$    9,600.00	12%	$        12,600.00	7%	$    10,800.00	9%	$    10,000.00	10%
Net income	$ 22,400.00	28%	$        32,400.00	18%	$    37,200.00	31%	$     30,000.00	30%