The average price of a gallon of gas in 2015 dropped $0.94 (28 percent) from $3.34 in 2014 (to $2.40 in 2015). Let’s see whether these changes are reflected in the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions). 20152014Revenues $245 $258 Cost of Purchased Crude Oil and Products 125 131 Other Operating Costs 61 55 Income before Income Tax Expense 59 72 Income Tax Expense 28 35 Net Income $31 $37 Required:Compute the gross profit percentage for each year. Assuming that the change from 2014 to 2015 is the beginning of a sustained trend, is Insignia likely to earn more or less gross profit from each dollar of sales in 2016?Compute the net profit margin for each year. Given your calculations here and in requirement 1, explain whether Insignia did a better or worse job of controlling expenses other than the costs of crude oil and products in 2015 relative to 2014.Insignia reported average net fixed assets of $190 billion in 2015 and $146 billion in 2014. Compute the fixed asset turnover ratios for both years. Did the company better utilize its investment in fixed assets to generate revenues in 2015 or 2014?Insignia reported average stockholders’ equity of $180 billion in 2015 and $146 billion in 2014. The company has not issued preferred stock. Compute the return on equity ratios for both years. Did the company generate greater returns for stockholders in 2015 or 2014?

Insignia Corporation's income statement for the year ending December 31, 2015, is shown below…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The average price of a gallon of gas in 2015 dropped $0.94 (28 percent) from $3.34 in 2014 (to $2.40 in 2015). Let’s see whether these changes are reflected in the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions).

	2015	2014
Revenues		$	245	$	258
Cost of Purchased Crude Oil and Products			125		131
Other Operating Costs			61		55
Income before Income Tax Expense			59		72
Income Tax Expense			28		35
Net Income		$	31	$	37

Required:

Compute the gross profit percentage for each year. Assuming that the change from 2014 to 2015 is the beginning of a sustained trend, is Insignia likely to earn more or less gross profit from each dollar of sales in 2016?
Compute the net profit margin for each year. Given your calculations here and in requirement 1, explain whether Insignia did a better or worse job of controlling expenses other than the costs of crude oil and products in 2015 relative to 2014.
Insignia reported average net fixed assets of $190 billion in 2015 and $146 billion in 2014. Compute the fixed asset turnover ratios for both years. Did the company better utilize its investment in fixed assets to generate revenues in 2015 or 2014?
Insignia reported average stockholders’ equity of $180 billion in 2015 and $146 billion in 2014. The company has not issued preferred stock. Compute the return on equity ratios for both years. Did the company generate greater returns for stockholders in 2015 or 2014?

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