In its income statement for the year ended June 30, 2009, The Clorox Company reported the following condensed data (dollars in millions).
|
Selling and |
Research and |
||
|
administrative expenses |
715 |
development expense |
114 |
|
Net sales |
5,450 |
Income tax expense |
274 |
|
Interest expense |
161 |
Other expense |
46 |
|
Advertising expense |
499 |
Cost of goods sold |
3,104 |
Instructions
(a) Prepare a multiple-step income statement.
(b) Calculate the gross profit rate and the profit margin ratio and explain what each means.
(c) Assume the marketing department has presented a plan to increase advertising expenses by $340 million. It expects this plan to result in an increase in both net sales and cost of goods sold of 25%. Redo parts (a) and (b) and discuss whether this plan has merit. (Assume a tax rate of 34%, and round all amounts to whole dollars.)