Use the following information for questions: sales $1,500,000; gross profit $640,000; net income $40,000 and income tax expense $35,000;
-What is the common size percentage for operating expenses?
A)37.7%
B)42.7%
C)95.0%
D)97.3%

Question

Quizplus · Accepted Answer

To find the common size percentage for operating expenses, we need to divide the operating expenses by net sales. 
Operating expenses = Net income + Income tax expense - Gross profit = $40,000 + $35,000 - $640,000 = $-565,000 
Common size percentage for operating expenses = Operating expenses / Net sales = $-565,000 / $1,500,000 = -0.377 or 37.7%. However, the negative value indicates that the company had a loss in operating expenses rather than a profit.

Use the Following Information for Questions: Sales $1,500,000; Gross Profit