In its income statement for the year ended June 30, 2007, The Clorox Company reported the following condensed data (dollars in millions).
|
Selling and |
$642 |
Research and |
$108 |
|
Net sales |
$4,847 |
Income tax expense |
247 |
|
Interest expense |
113 |
Other expense |
$11 |
|
Advertising expense |
474 |
Cost of goods sold |
$2,756 |
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 35%, and round all amounts to whole dollars.)