Tessler farms has a return on equity of 11.28 percent, a debt-equity ratio of 1.03, and a total asset turnover of .87. what is t
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Answer:
Increase in Administrative Expense of $3,300 additional led to loss in the year 2016.
Explanation:
As for the provided details:
Particulars 2016 2015
Revenue $30,000 $20,000
Cost of goods sold $17,800 $12,000
Gross margin $12,200 $8,000
Operating Exp
Selling Exp $4,800 $4,600
Admin. Exp $7,800 $3,000
Total operating exp $12,600 $7,600
Net Income ($400) $400
As we see the major difference which is irrelevant is in administration expense, that is because difference in cost of goods sold is somewhere justified as, when it calculated as a percentage of sale that is $12,000/$20,000 = 60%
Thus for year 2016 also the expense shall be $30,000 60% = $18,000
Thus, it is justified but for administrative expense $3,000/$20,000 = 15%
For 2016 = $30,000 15% = $4,500
But since it is very much exaggerated, by $7,800 - $4,500 = $3,300 this is the main reason of loss.