Homework Help is Here – Start Your Trial Now!
Business
Accounting
Why have Mr. Solid's profits increased at a faster rate than his sales?

Why have Mr. Solid's profits increased at a faster rate than his sales?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
100%

Why have Mr. Solid's profits increased at a faster rate than his sales?

Mike Solid started a pizzeria in 1999. For this purpose he rented a building for $1,800 per month. Two persons were hired to work full-time at the restaurant and six college students were hired to work 30 hours per week delivering pizza. An outside accountant was hired for tax and bookkeeping purposes at a cost of $900 per month. The necessary restaurant equipment and delivery cars were purchased with cash. Mr. Solid has noticed that expenses for utilities and supplies have been rather constant. Mr. Solid increased his business between 1999 and 2001. Profits have more than doubled since 1999. Mr. Solid does not understand why his profits have increased faster than his volume. A projected income statement for 2002 has been prepared by the accountant and is shown below: Projected Income Statement For the Year Ended December 31, 2002 Sales $308,000 Cost of food sold $92,400 Wages & fringe benefits of restaurant help Wages & fringe benefits of delivery persons 26,650 54,100 Rent 15,500 Accounting services Depreciation of delivery equipment Depreciation of restaurant equipment 10,900 16,000 8,000 Utilities 7,165 Supplies (soap, floor wax, etc.) 10,645 241,360 66,640 19,992 $ 46,648 Income before taxes Income taxes Net Income Note: The average pizza sells for $8.50. Assume that Mr. Solid pays out 30 percent of his income in income taxes.
Transcribed Image Text:Mike Solid started a pizzeria in 1999. For this purpose he rented a building for $1,800 per month. Two persons were hired to work full-time at the restaurant and six college students were hired to work 30 hours per week delivering pizza. An outside accountant was hired for tax and bookkeeping purposes at a cost of $900 per month. The necessary restaurant equipment and delivery cars were purchased with cash. Mr. Solid has noticed that expenses for utilities and supplies have been rather constant. Mr. Solid increased his business between 1999 and 2001. Profits have more than doubled since 1999. Mr. Solid does not understand why his profits have increased faster than his volume. A projected income statement for 2002 has been prepared by the accountant and is shown below: Projected Income Statement For the Year Ended December 31, 2002 Sales $308,000 Cost of food sold $92,400 Wages & fringe benefits of restaurant help Wages & fringe benefits of delivery persons 26,650 54,100 Rent 15,500 Accounting services Depreciation of delivery equipment Depreciation of restaurant equipment 10,900 16,000 8,000 Utilities 7,165 Supplies (soap, floor wax, etc.) 10,645 241,360 66,640 19,992 $ 46,648 Income before taxes Income taxes Net Income Note: The average pizza sells for $8.50. Assume that Mr. Solid pays out 30 percent of his income in income taxes.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Income Statement Analysis
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
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS