Question

Scherer Company provided the following income statements for its first 3 years of operation:

Scherer Company

Income Statements

Years of Operation

1		Year 1	Year 2	Year 3
2	Net sales	$960,000.00	$1,056,000.00	$1,248,000.00
3	Less: Cost of goods sold	295,000.00	324,000.00	363,000.00
4	Gross margin	$665,000.00	$732,000.00	$885,000.00
5	Less:
6	Operating expenses	425,000.00	484,000.00	595,500.00
7	Income taxes	109,600.00	121,200.00	136,600.00
8	Net income	$130,400.00	$126,800.00	$152,900.00

	Required:
	Prepare common-size income statements by using net sales as the base.

X

Labels and Amount Descriptions

Refer to the list below for the exact wording of an account title within your income statement.

Labels
Add
Less
Amount Descriptions
Add contribution margin
Cost of goods sold
Gross margin
Income taxes
Less contribution margin
Net income
Net loss
Net sales
Operating Expenses

Answer 1

• Common Size Income Statement, as asked.

--Percentage figure is based on the Net Sales amount of that Year

	Year 1		Year 2		Year 3
	Amount	% of Net Sales	Amount	% of Net Sales	Amount	% of Net Sales
Net sales	$      960,000.00	100.00%	$       1,056,000.00	100.00%	$ 1,248,000.00	100.00%
Less: Cost of goods sold	$      295,000.00	30.73%	$           324,000.00	30.68%	$      363,000.00	29.09%
Gross margin	$      665,000.00	69.27%	$           732,000.00	69.32%	$      885,000.00	70.91%
Less:		0.00%		0.00%		0.00%
Operating expenses	$      425,000.00	44.27%	$           484,000.00	45.83%	$     595,500.00	47.72%
Income taxes	$      109,600.00	11.42%	$           121,200.00	11.48%	$      136,600.00	10.95%
Net income	$      130,400.00	13.58%	$           126,800.00	12.01%	$      152,900.00	12.25%