Tactful Company reported the operating expenses other than interest expense for the year

amount to 40% of cost of goods sold but only 20% of sales. Interest expense is 5% of sales.

The amount of purchases is 120% of cost of goods sold. Ending inventories is twice as much as
the beginning inventory. The net income for the year is P 560,000. The income tax rate is 30%.

What is the amount of sale for the year?

a. P 2,080,000 c. P 2,285,000
b. 1,485,000 d. P 3,200,000
Solution:

Sales 3,200,000 100%

Cost of goods sold 1,600,000 (50%)
Gross Profit 1,600,000 50%
Operating expenses (40% of COGS, 20% of sales) 640,000 (20%)
Interest expense (5% of sales) 160,000 (5%)
Income before income tax 800,000 25%
Income Tax Expense (30%) (240,000)
Net Income 560,000

Computation:
Income before income tax (560,000 / 70%) 800,000 Income before tax
Sales (800,000 / 25%) 3,200,000 Sales