Question

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 %

Answer 1

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%