Arlington Company Has Prepared the Following Common-Size Income Statement to Compare

question 69

Multiple Choice

Arlington Company has prepared the following common-size income statement to compare its performance with industry averages:
$$\begin{array} { | l | r | r | } \hline & \text { Arlington Co. } & \text { Industry } \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of goods sold } & 43.8 \% & 39.7 \% \\\hline \text { Gross Profit } & 56.2 \% & 60.3 \% \\\hline \text { Operating expenses: } & & \\\hline \text { Sales and marketing expense } & 18.1 \% & 21.4 \% \\\hline \text { General and administrative expense } & 12.0 \% & 14.2 \% \\\hline \text { Research and development expense } & 4.1 \% & 4.0 \% \\\hline \text { Total operating expenses } & 34.2 \% & 39.6 \% \\\hline & & \\\hline \text { Income before income tax } & 22.0 \% & 20.7 \% \\\hline \text { Income tax expense } & 4.4 \% & 4.2 \% \\\hline \text { Net income(loss) } & 17.6 \% & 16.5 \% \\\hline\end{array}$$
Which of the following statements can be correctly concluded from the above data?

• A) Arlington's gross profit per dollar of sales is higher than the industry average.
• B) Arlington's net income is higher than the industry average.
• C) Arlington achieves better results than the industry by earning higher revenues.
• D) Arlington achieves better profitability than the industry, primarily by controlling operating expenses more effectively.

---

Definitions:

Exponential Expression

A mathematical phrase where numbers or variables are raised to a power or exponent.

Associative Property

A mathematical rule stating that the way in which numbers are grouped in operations does not change their result.

Multiplication

A mathematical operation where a number is added to itself a certain number of times.

Decimal Places

The number of digits to the right of the decimal point in a number, determining its precision.