Math Problem Statement
The S&H Construction Company expects to have total sales next year totaling $15,200,000. In addition, the firm pays taxes at 35 percent and will owe $304,000 in interest expense. Based on last year's operations the firm's management predicts that its cost of goods sold will be 57 percent of sales and operating expenses will total 25 percent.
Solution
To calculate the net income for S&H Construction Company, we'll need to break down the different components based on the information provided. Here's how we proceed:
1. Calculate Gross Profit:
The firm's cost of goods sold (COGS) is 57% of total sales.
Next, calculate the Gross Profit by subtracting the COGS from total sales:
2. Calculate Operating Income:
The firm's operating expenses are 25% of total sales.
Now, calculate the Operating Income (also known as EBIT, Earnings Before Interest and Taxes):
3. Calculate Earnings Before Taxes (EBT):
To get Earnings Before Taxes (EBT), subtract the interest expense from the operating income:
4. Calculate Net Income:
Now, apply the tax rate (35%) to the EBT to get the Net Income:
Final Result:
The Net Income for S&H Construction Company is $1,580,800.
Would you like further explanation or have any questions on this?
Here are five related questions for further practice:
- How would changes in the tax rate affect the net income?
- What if operating expenses increased by 5%? How would net income be impacted?
- How would you calculate the company's profit margin based on the net income and total sales?
- What if the company paid no interest expense? How would that affect the net income?
- How would changes in COGS affect the overall profitability?
Tip: Tracking different expense categories separately (like interest and operating expenses) is important in understanding a firm's financial health.
Ask a new question for Free
By Image
Drop file here or Click Here to upload
Math Problem Analysis
Mathematical Concepts
Profit Calculation
Income Tax
Percentage Calculations
Formulas
COGS = 0.57 × Total Sales
Operating Expenses = 0.25 × Total Sales
Gross Profit = Total Sales - COGS
Operating Income (EBIT) = Gross Profit - Operating Expenses
EBT = Operating Income - Interest Expense
Net Income = EBT - (Tax Rate × EBT)
Theorems
Basic Financial Accounting Formulas
Suitable Grade Level
Grades 10-12
Related Recommendation
Net Income Calculation for S&H Construction with Sales, COGS, Operating Expenses, and Taxes
Calculate Gross and Net Profit Margins for a Company with Given Sales and Expenses
Calculate Net Income with a 21% Tax Rate: Emerald Inc. Example
Calculate Adjusted Pre-tax Income and Income Tax Expense at 30% Tax Rate
Net Income Calculation Based on Sales, Expenses, and Tax Rate