Question

Selected data for three companies are given below. All inventory amounts are ending balances and all amounts are in millions.

Company A Company B Company C

Cash \( 6 Wages Expense \) 12 Administrative Expenses $ 4

Net Sales Revenue 48 Equipment 32 Cash 25

Finished Goods Inventory 10 Accounts Receivable 8 Net Sales Revenue 75

Cost of Goods Sold 23 Service Revenue 65 Selling Expenses 8

Selling Expenses 4 Cash 34 Merchandise Inventory 12

Equipment 67 Rent Expense 12 Equipment 55

Work-in-Process Inventory 9 Accounts Receivable 19

Accounts Receivable 14 Cost of Goods Sold 25

Cost of Goods Manufactured 23

Administrative Expenses 7

Raw Materials Inventory 6

Identifying differences between service, merchandising, and manufacturing companies Using the data on the previous page, calculate operating income for each company.

Short answer

The net operating income of company A is $14, company B is $41 and company C is $38.

Step-by-step solution

Step-by-Step SolutionStep 1 : Company A

Calculation of Operating Income for Company A
	Amount ($)	Amount ($)
Net Sales		$48
Less Cost of goods sold		$23
Gross Profit		$25
Selling and administrative expenses
Selling Expense	$4
Administrative Expense	$7
Total selling and admin expense		$11
Operating Income		$14

Company B

Calculation of Operating Income for Company B
	Amount ($)	Amount ($)
Service Revenue		$65
Less Wages		$12
Gross Profit		$53
Selling and administrative expenses
Rent Expense	$12
Total selling and admin expense		$12
Operating Income		$41

Company C

Calculation of Operating Income for Company C
	Amount ($)	Amount ($)
Net Sales		$75
Less Cost of goods sold		$25
Gross Profit		$50
Selling and administrative expenses
Selling Expense	$8
Administrative Expense	$4
Total selling and admin expense		$12
Operating Income		$38