Please Refer to the Following Data Which of the Following Statements Is a Valid Conclusion Based

question 72

Multiple Choice

Please refer to the following data: $\begin{array}{|l|r|r|r|r|}\hline \text { (Dollar amounts in millions) } & 2014 & & 2013 & \\\hline & \text { Amount } & \text { \% of Total } & \text { Amount } & \text { \% of Total } \\\hline \text { Revenues } & \$ 6,355 & 100.0 \% & \$ 4,920 & 100.0 \% \\\hline \text { Cost of revenues } & 3,370 & 53.0 \% & 2,200 & 44.7 \% \\\hline \text { Gross Profit } & 2,985 & 47.0 \% & 2,720 & 55.3 \% \\\hline \text { Operating expenses: } & & & & \\\hline \text { Sales and marketing expense } & 675 & 10.6 \% & 580 & 11.8 \% \\\hline \text { General and administrative expense } & 410 & 6.5 \% & 425 & 8.6 \% \\\hline \text { Research and development expense } & 470 & 7.4 \% & 390 & 7.9 \% \\\hline \text { Other expense } & 400 & 6.3 \% & 695 & 14.1 \% \\\hline \text { Total operating expenses } & \$ 1,955 & 30.8 \% & \$ 2,090 & 42.5 \% \\\hline & & & & \\\hline \text { Income before income tax } & \$ 1,030 & 16.2 \% & \$ 630 & 12.8 \% \\\hline \text { Income tax expense } & 230 & 3.6 \% & 210 & 4.3 \% \\\hline \text { Net income (loss) } & \$ 800 & 12.6 \% & \$ 420 & 8.5 \% \\\hline\end{array}$
Which of the following statements is a valid conclusion based on this data?

• A) Profitability in 2014 took a dive as operating expenses increased by 30.8%.
• B) Profitability in 2014 improved greatly, as net income increased significantly as a percentage of sales.
• C) Net income in 2014 increased 12.6% over the prior year.
• D) Net income in 2014 went down because gross profit as a percentage of sales declined over the 2-year period.

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Definitions:

Short-Run Aggregate Supply

Represents the total supply of goods and services that firms in an economy plan on selling during a short time period, based on the current price level.

Aggregate Demand

The total demand for goods and services within a particular market or economy at a given price level and period.

Equilibrium Output

The level of output where the quantity of goods produced equals the quantity of goods consumed, resulting in a stable economy.

Government Expenditure

The total amount of spending by a government on goods, services, and public works.