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

question 89

Multiple Choice

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

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

---

Definitions:

Decision-making Process

A systematic approach to making choices among various options based on reasoning and analysis.

Force-coercion Strategy

A strategy used to effect change within an organization through the use of power, authority, or force, often leading to compliance without genuine agreement.

Formal Authority

The power given to an individual or group by a recognized entity, typically within an organizational context, to make decisions and direct others.

Rewards

Benefits or compensations provided to individuals or groups in recognition of their performance, efforts, or achievements.