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.

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Definitions:

Primary Tool

The main instrument or device used to accomplish a task or achieve a goal.

Market Value Ethics

A principle that considers ethical actions in the marketplace as those that maximize the value for all stakeholders involved.

Utilitarianism

is an ethical theory that suggests the best action is the one that maximizes utility, usually defined as that which produces the greatest well-being of the greatest number of people.

Ethical Relativism

The belief that morality is relative to the norms of one's culture, meaning that what is considered moral in one society may be considered immoral in another.