7. Company A has the following information from its financial statements:

Year 2
Year 1
Revenue
100,000
40,000
COGS
75,000
30,000
Other Expenses
10,000
6,000
Net Income
15,000
4,000
Which of the following statements is correct?
• COGS is a fixed cost.
• Return on Sales ratio increased.
) Return on Sales ratio is constant.
• Other expenses is fixed costs.

To evaluate which of the statements is correct, let's analyze the financial information and the concepts involved.

### Definitions:
1. **COGS (Cost of Goods Sold)** is typically considered a **variable cost** because it changes in proportion to sales or production levels.
2. **Return on Sales (ROS)** is a profitability ratio that calculates how efficiently a company is generating profit from its revenue. It's calculated as:

\[
\text{ROS} = \frac{\text{Net Income}}{\text{Revenue}} \times 100
\]

3. **Other expenses** could be fixed or variable depending on their nature. Fixed costs don't change with production levels, while variable costs do.

### Step 1: Check if COGS is a fixed cost.
COGS is usually a **variable cost** since it increases with higher production levels. This is confirmed here as COGS increases from 30,000 to 75,000 when revenue increases from 40,000 to 100,000. **COGS is not a fixed cost**.

### Step 2: Calculate Return on Sales (ROS) for Year 1 and Year 2.

- **Year 1 ROS**:
\[
ROS_{Y1} = \frac{4,000}{40,000} \times 100 = 10\%
\]

- **Year 2 ROS**:
\[
ROS_{Y2} = \frac{15,000}{100,000} \times 100 = 15\%
\]

Since ROS increased from 10% to 15%, **Return on Sales ratio increased**.

### Step 3: Check if the ROS is constant.
No, ROS is **not constant** because it increased from 10% to 15%.

### Step 4: Are Other Expenses fixed costs?
Other expenses increased from 6,000 to 10,000 as revenue increased from 40,000 to 100,000. Since these expenses increased with revenue, they likely have a **variable component** and are not entirely fixed.

### Conclusion:
The correct statement is:
- **Return on Sales ratio increased**.

---

Would you like any details or further clarification?

Here are some related questions to consider:
1. How does Return on Sales compare to other profitability ratios?
2. How would fixed and variable costs impact a company's break-even point?
3. Can COGS include both fixed and variable components in some industries?
4. How would you calculate the contribution margin ratio using this data?
5. What other financial ratios could help assess this company’s performance?

**Tip**: Keep in mind that fixed costs remain constant regardless of sales, while variable costs fluctuate with production or sales volume.

Company A has the following information from its financial statements: Year 2: Revenue 100,000, COGS 75,000, Other Expenses 10,000, Net Income 15,000. Year 1: Revenue 40,000, COGS 30,000, Other Expenses 6,000, Net Income 4,000. Which of the following statements is correct? • COGS is a fixed cost. • Return on Sales ratio increased. • Return on Sales ratio is constant. • Other expenses is fixed costs.

Learn how to analyze Return on Sales (ROS) and cost structures in financial statements. This problem covers key financial concepts, including profitability ratios and the classification of costs as variable or fixed, with step-by-step calculations of ROS for two consecutive years.

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