Athletic World reports the following vertical analysis percentages.

$$\begin{matrix} \text{ } & \text{2018} & \text{2017}\\ \hline \text{Sales} & \text{100$\\\%$} & \text{100$\\\%$}\\ \text{Cost of goods sold} & \text{48$\\\%$} & \text{56$\\\%$}\\ \text{Operating expenses} & \text{35$\\\%$} & \text{30$\\\%$}\\ \end{matrix}$$

Did Athletic World's income before tax as a percentage of sales increase, decrease, or stay the same? If net income as a percentage of sales increases, does that mean net income also increases? Explain.

The accountant for Porile Company prepared the following data for sales and losses from uncollectible accounts:

$$\begin{array}{rrc} &&\text { Losses from}\\ \text { Year } & \text { Credit Sales } & \text { Uncollectible Accounts* } \\ \hline 2015 & \$ 883,000 & \$ 13,125 \\ 2016 & 952,000 & 14,840 \\ 2017 & 1,083,000 & 16,790 \\ 2018 & 1,189,000 & 16,850 \end{array}$$

*Losses from uncollectible accounts are the actual losses related to sales of that year (rather than write-offs of that year).

Required:

Do you believe this estimate of bad debt expense is reasonable?

Apple's financial statements and notes in Appendix A provide evidence of growth potential in its sales.

Required

1. Identify at least two types of costs that will predictably increase as a percent of sales with growth in sales.
2. Explain why you believe the types of costs identified for part 1 will increase, and describe how you might assess Apple's success with these costs. (Hint: You might consider the gross margin ratio.)
3. Access Apple's annual report for a fiscal year ending after September 28, 2013, from its website [Apple.com] or the SEC's EDGAR database [www.SEC.gov ]. Review and report its growth in sales along with its cost and income levels (including its gross margin ratio).

Castor, Inc., is preparing its master budget for the quarter ended June 30. Budgeted sales and cash payments for merchandise for the next three months follow:

$$\begin{matrix} \text{Budgeted} & \text{April} & \text{May} & \text{June}\\ \text{Sales}\ldots\ldots\ldots & \text{\$32,000} & \text{\$40,000} & \text{\$24,000}\\ \text{Cash payments for merchandise}\ldots\ldots\ldots & \text{20,200} & \text{16,800} & \text{17,200}\\ \end{matrix}$$

Sales are 50% cash and 50% on credit. All credit sales are collected in the month following the sale. The March 31 balance sheet includes balances of $12,000 in cash,$12,000 in accounts receivable, $11,000 in accounts payable, and a$2,000 balance in loans payable. A minimum cash balance of $12,000 is required. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 1% per month based on the beginning of the month loan balance and is paid at each month-end. If an excess balance of cash exists, loans are repaid at the end of the month. Operating expenses are paid in the month incurred and include sales commissions (10% of sales), shipping (2% of sales), office salaries ($5,000 per month), and rent ($3,000 per month). Prepare a cash budget for each of the months of April, May, and June (round all dollar amounts to the nearest whole dollar).

Compute net sales, gross profit, and the gross margin ratio for each separate case a through d. Interpret the gross margin ratio for case a.

$$\begin{matrix} & \text{a} & \text{b} & \text{c} & \text{d}\\ \text{Sales}\ldots\ldots\ldots & \text{\$150,000} & \text{\$550,000} & \text{\$38,700} & \text{\$255,700}\\ \text{Sales discounts} \ldots\ldots\ldots & \text{5,000} & \text{17,500} & \text{600} & \text{4,800}\\ \text{Sales returns and allowances} \ldots\ldots\ldots & \text{20,000} & \text{6,000} & \text{5,100} & \text{900}\\ \text{Cost of goods sold}\ldots\ldots\ldots & \text{79,750} & \text{329,589 } & \text{24,453} & \text{126,500}\\ \end{matrix}$$

Assuming that the increase or decrease in actual sales to budget indicated in part (1) is to continue in 2017, compute the unit sales volume to be used for preparing the sales budget for the year ending December 31,2017. Place your answers in a columnar table similar to that in part (1) but with the following column heads. Round budgeted units to the nearest unit.

$$\begin{array}{ccc} 2016 & \text { Percentage } & 2017 \\ \text { Actual } & \text { Increase } & \text { Budgeted } \\ \text { Units } & \text { (Decrease) } & \text { Units (rounded) } \\ \hline \end{array}$$

The following data are taken from the financial statements of Krawcheck Inc. Terms of all sales are 2/10, n/55.:

$$\begin{array}{l} &\textbf{2014}&\textbf{2013}&\textbf{2012}\\ \hline \text{Accounts receivable, end of year}&\text{\$500,000 }&\text{\$475,000 }&\text{\$440,000}\\ \text{Net sales on account}&\text{3,412,500 }&\text{2,836,500}\\ \end{array}$$

a. For 2013 and 2014, determine (1) the accounts receivable turnover and (2) the number of days’ sales in receivables. Round to the nearest dollar and one decimal place.

A company's annual sales (in units of 1 billion dollars) for its first 5 years of operation are shown in this table:

$$\begin{matrix} \text{Year} & \text{1} & \text{2} & \text{3} & \text{4} & \text{5}\\ \text{Sales} & \text{0.9} & \text{1.5} & \text{1.9} & \text{2.4} & \text{3.0}\\ \end{matrix}$$

a. Plot these data on a graph. b. Find the equation of the least-squares line. c. Use the least-squares line to predict the company's sixth-year sales.

Refer to the financial statements of United Parcel Service presented in the previous activity to answer the following requirements. The following assumptions should be useful:

• UPS's sales forecast for 2018 is $70,000 million.
• Operating expenses and operating profits increase in proportion to sales.
• Investment income and interest expense are unchanged in 2018.
• Income taxes are 25% of pretax earnings.
• Marketable securities and noncurrent investments are unchanged in 2018; all other assets (except cash) increase in proportion to sales.
• Long-term debt and current maturities of long-term debt are unchanged in 2018; all other liabilities increase in proportion to sales.
• Dividends are 50% of net income. Income and dividends are the only changes to stockholders' equity in 2018.

b. Prepare a balance sheet forecast for 2018.

The sales of digital audio players in millions of dollars for a five-year period can be modeled using $f(t)=24 t^{2}-93 t+78$, where t is the year. The special sales data are shown in the table.

$$\begin{matrix} \text{Year} & \text{Sales (\$)}\\ \text{1} & \text{1 milion}\\ \text{2} & \text{3 milion}\\ \text{3} & \text{14 milion}\\ \text{4} & \text{74 milion}\\ \text{5} & \text{219 milion}\\ \end{matrix}$$

Find f(1) and f(5).

Measure Company A’s market share and the growth rate of the market it operates in from the following data. Comment on your results.

$$\begin{array}{|l|c|c|} \hline & \textbf{ 2013 } & \textbf{ 2014 } \\ \hline \text { Total market sales (units) } & 36000 & 48000 \\ \hline \text{ Total market value (\$ in millions) } & 5.0 & 6.5 \\ \hline \text { Company A's sales (units) } & 3600 & 5000 \\ \hline \text { Company A's sales value }(\$ \mathrm{~m}) & 0.5 & 0.6 \\ \hline \end{array}$$

What evidence does Atkinson present to support his opinion regarding the merits of The Crucible compared with Death of a Salesman?

Calculate the amount of net sales lost to an electronics store with annual sales of $8,359,000 and a shoplifting rate of 3.2 percent.

Calculating Losses Solutions to problems that ask values of losses are most often given as a percent. Convert the percent to a decimal number and multiply to find the dollar value.

At year-end 2016, total assets for Arrington Inc. were $1.8 million and accounts payable were$450,000. Sales, which in 2016 were $3.0 million, are expected to increase by 25% in 2017. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Arrington typically uses no current liabilities other than accounts payable. Common stock amounted to$500,000 in 2016, and retained earnings were $475,000. Arrington plans to sell new common stock in the amount of$130,000 The firm’s profit margin on sales is 5%; 35% of earnings will be retained. a. What were Arrington’s total liabilities in 2016? b. How much new long-term debt financing will be needed in 2017? (