Question

In: Accounting

A comparative income statement is given below for McKenzie Sales, Ltd., of Toronto: McKenzie Sales, Ltd....

A comparative income statement is given below for McKenzie Sales, Ltd., of Toronto:

McKenzie Sales, Ltd.
Comparative Income Statement
This Year Last Year
Sales $ 7,320,000 $ 5,563,200
Cost of goods sold 4,660,000 3,510,500
Gross margin 2,660,000 2,052,700
Selling and administrative expenses:
Selling expenses 1,383,000 1,072,500
Administrative expenses 704,000 613,500
Total expenses 2,087,000 1,686,000
Net operating income 573,000 366,700
Interest expense 105,000 84,000
Net income before taxes $ 468,000 $ 282,700

Members of the company’s board of directors are surprised to see that net income increased by only $185,300 when sales increased by $1,756,800.

Required:

1. Express each year's income statement in common-size percentages. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

This Year Last Year
Sales % %
Cost of goods sold % %
Gross margin 0.0 % 0.0 %
Selling and administrative expenses:
Selling expenses % %
Administrative expenses % %
Total selling and administrative expenses 0.0 % 0.0 %
Net operating income 0.0 % 0.0 %
Interest expense % %
Net income before taxes 0.0 % 0.0 %

Solutions

Expert Solution

Comparative Income Statement
This Year Last Year
Sales $     73,20,000 100.0% $     55,63,200 100.0%
Cost of goods sold $     46,60,000 63.7% $     35,10,500 63.1%
Gross margin $     26,60,000 36.3% $     20,52,700 36.9%
Selling and administrative expenses:
Selling expenses $     13,83,000 18.9% $     10,72,500 19.3%
Administrative expenses $        7,04,000 9.6% $        6,13,500 11.0%
Total expenses $     20,87,000 28.5% $     16,86,000 30.3%
Net operating income $        5,73,000 7.8% $        3,66,700 6.6%
Interest expense $        1,05,000 1.4% $           84,000 1.5%
Net income before taxes $        4,68,000 6.4% $        2,82,700 5.1%

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