Question

Vertical Analysis of Income Statement

1. For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $16,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement:

   Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1
   	20Y2		20Y1
   Sales	$579,000		$498,000
   Cost of goods sold	306,870		283,860
   Gross profit	$272,130		$214,140
   Selling expenses	$110,010		$89,640
   Administrative expenses	57,900		59,760
   Total operating expenses	$167,910		$149,400
   Income from operations	$104,220		$64,740
   Other revenue	17,370		14,940
   Income before income tax	$121,590		$79,680
   Income tax expense	46,320		29,880
   Net income	$75,270		$49,800

   Required:

   1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Enter percentages as whole numbers. Enter all amounts as positive numbers.

   Tri-Comic Company
   Comparative Income Statement
   For the Years Ended December 31, 20Y2 and 20Y1
   	20Y2 Amount	20Y2 Percent	20Y1 Amount	20Y1 Percent
   Sales	$579,000	%	$498,000	%
   Cost of goods sold	306,870	%	283,860	%
   Gross profit	$272,130	%	$214,140	%
   Selling expenses	$110,010	%	$89,640	%
   Administrative expenses	57,900	%	59,760	%
   Total operating expenses	$167,910	%	$149,400	%
   Income from operations	$104,220	%	$64,740	%
   Other revenue	17,370	%	14,940	%
   Income before income tax	$121,590	%	$79,680	%
   Income tax expense	46,320	%	29,880	%
   Net income	$75,270	%	$49,800	%

   2. The vertical analysis indicates that the costs other than selling expenses (cost of goods sold and administrative expenses)   as a percentage of sales. As a result, net income as a percentage of sales  . The sales promotion campaign appears to have been  . While selling expenses as a percent of sales   slightly, the   cost was more than made up for by   sales.

Answer 1

• Requirements

Tri-Comic Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2 Amount	20Y2 Percent	20Y1 Amount	20Y1 Percent
Sales	$579,000	100.0%	$498,000	100.0%
Cost of goods sold	$306,870	53.0%	$283,860	57.0%
Gross profit	$272,130	47.0%	$214,140	43.0%
Selling expenses	$110,010	19.0%	$89,640	18.0%
Administrative expenses	$57,900	10.0%	$59,760	12.0%
Total operating expenses	$167,910	29.0%	$149,400	30.0%
Income from operations	$104,220	18.0%	$64,740	13.0%
Other revenue	$17,370	3.0%	$14,940	3.0%
Income before income tax	$121,590	21.0%	$79,680	16.0%
Income tax expense	$46,320	8.0%	$29,880	6.0%
Net income	$75,270	13.0%	$49,800	10.0%

The vertical analysis indicates that the costs other than selling expenses (cost of goods sold and administrative expenses) DECREASED  as a percentage of sales. As a result, net income INCREASED as a percentage of sales  . The sales promotion campaign appears to have been  . While selling expenses as a percent of sales INCREASED   slightly, the  INCREASED cost was more than made up for by INCREASED   sales.