Following are income statements for Hossa Corporation for 20X1 and 20X2. Percentage of sales amounts are also shown for each operating expense item. Hossa’s income tax rate was 22% in 20X1 and 24% in 20X2. 20X1 20X2 ($ in millions) $ in millions % of sales $ in millions % of sales Sales $ 5,500.0 $ 6,500.0 Cost of sales (2,475.0 ) 45 % (3,055.0 ) 47 % Other operating expenses (825.0 ) 15 % (1,040.0 ) 16 % Operating income 2,200.0 2,405.0 Provision for income taxes (484.0 ) (577.2 ) Net income $ 1,716.0 $ 1,827.8 Income tax rate 22 % 24 % Hossa’s management was pleased that 20X2 net income was up 6.5% from the prior year. Although you are also happy with the increase in net income, you are not so sure the news is all positive. You have modeled Hossa’s income as follows: NET INCOME = SALES × (1 − COGS% − OPEX%) × (1 − TAX RATE) Using this model, net income in 20X1 is computed as $5,500 × (1 − 45% − 15%) × (1 − 22%) = $1,716.0. Net income in 20X2 is computed as $6,500 × (1 − 47% − 16%) × (1 − 24%) = $1,827.8. Required: Prepare a cause-of-change analysis to show the extent to which each of the following items contributed to the $111.8 million increase in Hossa’s net income from 20X1 to 20X2: (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place. Negative amounts should be indicated by a minus sign.) Increase in sales (SALES) Increase in cost of sales as a percent of sales (COGS%) Increase in other operating expenses as a percent of sales (OPEX%) Increase in income tax rate (TAX RATE)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter6: Accounting For Financial Management

Section: Chapter Questions

Problem 7P

See similar textbooks

Related questions

Question

Following are income statements for Hossa Corporation for 20X1 and 20X2. Percentage of sales amounts are also shown for each operating expense item. Hossa’s income tax rate was 22% in 20X1 and 24% in 20X2.

	20X1		20X2
($ in millions)	$ in millions		% of sales	$ in millions		% of sales
Sales	$	5,500.0					$	6,500.0
Cost of sales		(2,475.0	)		45	%		(3,055.0	)	47	%
Other operating expenses		(825.0	)		15	%		(1,040.0	)	16	%
Operating income		2,200.0						2,405.0
Provision for income taxes		(484.0	)					(577.2	)
Net income	$	1,716.0					$	1,827.8
Income tax rate		22	%					24	%

Hossa’s management was pleased that 20X2 net income was up 6.5% from the prior year. Although you are also happy with the increase in net income, you are not so sure the news is all positive. You have modeled Hossa’s income as follows:

NET INCOME = SALES × (1 − COGS% − OPEX%) × (1 − TAX RATE)

Using this model, net income in 20X1 is computed as $5,500 × (1 − 45% − 15%) × (1 − 22%) = $1,716.0. Net income in 20X2 is computed as $6,500 × (1 − 47% − 16%) × (1 − 24%) = $1,827.8.

Required:

Prepare a cause-of-change analysis to show the extent to which each of the following items contributed to the $111.8 million increase in Hossa’s net income from 20X1 to 20X2: (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place. Negative amounts should be indicated by a minus sign.)

Increase in sales (SALES)
Increase in cost of sales as a percent of sales (COGS%)
Increase in other operating expenses as a percent of sales (OPEX%)
Increase in income tax rate (TAX RATE)

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions