Question

Presented below is the current year-ended income statement for Weiss, Inc.:

Amounts in thousands
Sales	$190,000
Cost of goods sold	59,800
Depreciation expense	20,500
Other operating expenses	33,600
Income taxes expense	16,530
Net income	$ 59,570

Suppose Weiss, Inc. forecasts the following events will occur during the following year:

1.	Increase in sales, cost of goods sold, and cash by 20%
2.	Effective tax rate, 30%
3.	Increase in operating expenses by 10%
4.	No change in depreciation

How much is Weiss Inc.'s pro forma gross profit margin ratio expected to be during the year?

	A.	58.5%
	B.	70.0%
	C.	68.5%
	D.	40.0%

Answer 1

The solution is Option C: 68.5%
Particulars	Amount	Increase%	New Amount
Sales	190,000	20%	228,000
Less: Cost of Goods sold	59,800	20%	71,760
Gross Profit	130,200		156,240
Depreciation expense	20,500	-	20,500
Other operating expense	33,600	10%	36,960
	76,100		98,780
Income taxes expense	16,530		29,634	(98,780 x 30%)
Net income	59,570		69,146
Gross Profit margin =	Gross Profit	x 100
	Sales
=	156,240	x 100
	228,000
=	68.5%