Question: The vice-president of marketing and the director of human resources have developed a proposal whereby the company would compensate the sales force on a strictly commission basis using 20% of net sales. Given the increased incentive, they expect net sales to increase by 15%. As a result, they estimate that gross profit will increase by $38,583 and operating expenses by $64,222. Compute the expected new net income. (Hint: You do not need to prepare an income statement).

The previous net income was 45041 and the net sales was 906984.
How would you compute the profit margin ratio and the gross rate profit?  Edit

Answer: Net Profit Ratio or Profit Margin Ratio = (Net Profit/Net Sales) x 100
Previous Year:
Net sales = 906,984
Less: Net Income= 45,041
Expense = 861,943

Current Year:
Net Sales= 906984+15%= 1,043,031.60
Less:Expenses=861943+64222= 926,165.00
Expected Net Income= 116,866.60

Profit Margin Ratio = (116,866.6/1,043,031.60) x 100 = 11.20%

Gross Profit Ratio = (Change in G.P/ Change in Sales) x 100
Net increase in G.P. = 38,583
Net increase in Sales = (906,984x15%)= 136,047.60
GP Ratio = (38,583.00/136,047.60) x 100 = 28.36%  Edit