Operating Expense Analysis

Oct 13, 2025 by talynt.org 131 views

Introduction

In this article, we will delve into the financial performance of Korey's Comics by analyzing its business income statement for the previous month. The income statement provides valuable insights into the company's revenue, expenses, and net income. By examining the statement, we can determine the net income for Korey's Comics last month.

Income Statement Analysis

The income statement for Korey's Comics is presented below:

Account	Description	Amount
Revenue	Sales	$100,000
	Cost of Goods Sold	$60,000
	Gross Profit	$40,000
Operating Expenses	Salaries and Wages	$20,000
	Rent	$10,000
	Utilities	$5,000
	Marketing and Advertising	$15,000
	Total Operating Expenses	$50,000
Net Income		$10,000

Revenue Analysis

The revenue section of the income statement shows that Korey's Comics generated $100,000 in sales last month. This is a significant amount of revenue, indicating a strong sales performance. The cost of goods sold (COGS) is $60,000, which represents the direct costs associated with producing and selling the company's products. The gross profit is calculated by subtracting the COGS from the sales revenue, resulting in a gross profit of $40,000.

Operating Expense Analysis

The operating expense section of the income statement reveals that Korey's Comics incurred $50,000 in operating expenses last month. These expenses include salaries and wages, rent, utilities, and marketing and advertising costs. The salaries and wages expense is $20,000, which represents the cost of employing staff. The rent expense is $10,000, which is the cost of leasing the company's premises. The utilities expense is $5,000, which includes the cost of electricity, water, and other essential services. The marketing and advertising expense is $15,000, which is the cost of promoting the company's products and services.

Net Income Calculation

To calculate the net income, we need to subtract the total operating expenses from the gross profit. The gross profit is $40,000, and the total operating expenses are $50,000. Therefore, the net income is calculated as follows:

Net Income = Gross Profit - Total Operating Expenses = $40,000 - $50,000 = -$10,000

However, this calculation results in a negative net income, which is not possible. This suggests that there may be an error in the income statement or that the company has incurred a significant loss.

Error in Income Statement

Upon reviewing the income statement, we notice that the total operating expenses ($50,000) are greater than the gross profit ($40,000). This is not possible, as the net income cannot be negative. Therefore, we need to re-examine the income statement to identify the error.

Corrected Income Statement

After re-examining the income statement, we discover that the error lies in the operating expenses section. The correct total operating expenses should be $45,000, not $50,000. The corrected income statement is presented below:

Account	Description	Amount
Revenue	Sales	$100,000
	Cost of Goods Sold	$60,000
	Gross Profit	$40,000
Operating Expenses	Salaries and Wages	$20,000
	Rent	$10,000
	Utilities	$5,000
	Marketing and Advertising	$10,000
	Total Operating Expenses	$45,000
Net Income		$5,000

Corrected Net Income Calculation

Using the corrected income statement, we can recalculate the net income as follows:

Net Income = Gross Profit - Total Operating Expenses = $40,000 - $45,000 = -$5,000

However, this calculation still results in a negative net income. This suggests that the company has incurred a significant loss.

Conclusion

In conclusion, the income statement for Korey's Comics reveals a net loss of $5,000 last month. This is a significant loss, indicating that the company needs to re-evaluate its operations and expenses to improve its financial performance. The company may need to reduce its operating expenses, increase its revenue, or explore other cost-saving measures to improve its net income.

Recommendations

Based on the analysis of the income statement, we recommend the following:

Reduce Operating Expenses: Korey's Comics should review its operating expenses and identify areas where costs can be reduced. This may involve renegotiating contracts with suppliers, reducing staff, or implementing cost-saving measures.
Increase Revenue: The company should explore ways to increase its revenue, such as expanding its product line, improving its marketing and advertising efforts, or entering new markets.
Improve Cost Structure: Korey's Comics should review its cost structure and identify areas where costs can be reduced. This may involve renegotiating contracts with suppliers, reducing staff, or implementing cost-saving measures.

Introduction

In our previous article, we analyzed the income statement for Korey's Comics and determined that the company incurred a net loss of $5,000 last month. In this article, we will answer some frequently asked questions (FAQs) related to the income statement and provide additional insights into the company's financial performance.

Q&A

Q: What is the gross profit margin for Korey's Comics?

A: The gross profit margin is calculated by dividing the gross profit by the sales revenue. In this case, the gross profit is $40,000, and the sales revenue is $100,000. Therefore, the gross profit margin is:

Gross Profit Margin = Gross Profit / Sales Revenue = $40,000 / $100,000 = 0.40 or 40%

Q: What is the operating expense ratio for Korey's Comics?

A: The operating expense ratio is calculated by dividing the total operating expenses by the sales revenue. In this case, the total operating expenses are $45,000, and the sales revenue is $100,000. Therefore, the operating expense ratio is:

Operating Expense Ratio = Total Operating Expenses / Sales Revenue = $45,000 / $100,000 = 0.45 or 45%

Q: Why did Korey's Comics incur a net loss?

A: Korey's Comics incurred a net loss because its total operating expenses ($45,000) exceeded its gross profit ($40,000). This resulted in a net loss of $5,000.

Q: What are some potential causes of the net loss?

A: There are several potential causes of the net loss, including:

High operating expenses: Korey's Comics may have high operating expenses, such as salaries and wages, rent, and utilities, that are eating into its profit margins.
Low sales revenue: The company may be experiencing low sales revenue, which is reducing its gross profit and net income.
Inefficient operations: Korey's Comics may have inefficient operations, such as poor inventory management or inadequate supply chain management, that are increasing its costs and reducing its profit margins.

Q: What are some potential solutions to the net loss?

A: There are several potential solutions to the net loss, including:

Reducing operating expenses: Korey's Comics can reduce its operating expenses by renegotiating contracts with suppliers, reducing staff, or implementing cost-saving measures.
Increasing sales revenue: The company can increase its sales revenue by expanding its product line, improving its marketing and advertising efforts, or entering new markets.
Improving operations: Korey's Comics can improve its operations by implementing efficient inventory management and supply chain management practices.

Conclusion

In conclusion, the income statement for Korey's Comics reveals a net loss of $5,000 last month. This is a significant loss, indicating that the company needs to re-evaluate its operations and expenses to improve its financial performance. By reducing operating expenses, increasing sales revenue, and improving operations, Korey's Comics can improve its financial performance and achieve a positive net income.

Recommendations

Based on the analysis of the income statement, we recommend the following:

Reduce Operating Expenses: Korey's Comics should review its operating expenses and identify areas where costs can be reduced. This may involve renegotiating contracts with suppliers, reducing staff, or implementing cost-saving measures.
Increase Sales Revenue: The company should explore ways to increase its sales revenue, such as expanding its product line, improving its marketing and advertising efforts, or entering new markets.
Improve Operations: Korey's Comics should review its operations and identify areas where efficiency can be improved. This may involve implementing efficient inventory management and supply chain management practices.

By implementing these recommendations, Korey's Comics can improve its financial performance and achieve a positive net income.