One of the few companies to ever report the extent of sales discounts and returns was sunglass maker Oakley, Inc. In the Management Discussion and Analysis section of its 2005 annual report, Oakley reported the following information about its Sales Discounts and Returns.

One of the few companies to ever report the extent of sales discounts and returns was sunglass maker Oakley, Inc. In the Management Discussion and Analysis section of its 2005 annual report, Oakley reported the following information about its Sales Discounts and Returns.

 

Year Ended December 31,
(in thousands)	2005			2004
Gross Sales	$	694,542		$	623,452
Sales Discounts and Returns		(44,911	)		(35,384	)
Net Sales		649,631			588,068
Cost of Goods Sold		277,030			261,783
Gross Profit		372,601			326,285

Requirement 1:

(a)	For each year, calculate the percentage of sales discounts and returns. (Round your answers to 1 decimal place. Omit the "%" signs in your response.)

 

	Sales discounts & returns
2005			%
2004			%

(b)	Based on these percentages, explain whether Sales Discounts and Returns have a greater impact in 2005 or 2004.

Greater impact in 2005

   

Requirement 2:

(a)	For each year, calculate the gross profit percentage (i.e., using net sales). (Round your answers to 1 decimal place. Omit the "%" signs in your response.)

 

	Gross profit percentage
2005			%
2004			%

 

(b)	Did Oakley’s gross profit improve or worsen in 2005, as compared to 2004?

 

Improved

Explanation:

1(a):
2005

% sales discounts & returns	=	Sales D&R	× 100	=	$44,911	× 100	=	6.5%
		Gross sales			$694,542

2004

% sales discounts & returns	=	Sales D&R	× 100	=	$35,384	× 100	=	5.7%
		Gross sales			$623,452

(b)

From the above analyses, we can see that sales discounts and returns had a greater impact in 2005 than in 2004.

2(a):

2005

Gross profit percentage	=	Gross profit	× 100	=	$372,601	× 100	=	57.4%
		Net sales			$649,631

2004

Gross profit percentage	=	Gross profit	× 100	=	$326,285	× 100	=	55.5%
		Net sales			$588,068

(b)

Oakley’s gross profit percentage increased in 2005, which is generally viewed as an improvement because it means the company is earning more gross profit from each dollar of sales. From each dollar of sales in 2005, Oakley earned approximately 57 cents, which could be used to cover the costs of other operating expenses and income taxes.