Problem:
Wilde Home & Garden is organized into three departments. The following sales and cost data are available for the prior year:
Dept A Dept B Dept C Total
Sales $270,000 $855,000 $910,000 $2,035,000
Less: VC 110,000 520,000 710,000 1,340,000
CM 160,000 335,000 200,000 695,000
Less: FC 70,000 90,000 95,000 255,000
Profit 90,000 245,000 105,000 440,000
a. Calculate profit as a percent of sales in the prior year
b. Suppose sales in the current year increased by 15 percent. Calculate profit as a percent of sales for the new level of sales and explain why the percent is greater than the one calculated in part a.