Question

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $20,000 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	$728,000		$626,000
Cost of goods sold	349,440		331,780
Gross profit	$378,560		$294,220
Selling expenses	$145,600		$118,940
Administrative expenses	80,080		81,380
Total operating expenses	$225,680		$200,320
Income from operations	$152,880		$93,900
Other revenue	29,120		37,560
Income before income tax	$182,000		$131,460
Income tax expense	72,800		50,080
Net income	$109,200		$81,380

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	$728,000	%	$626,000	%
Cost of goods sold	349,440	%	331,780	%
Gross profit	$378,560	%	$294,220	%
Selling expenses	$145,600	%	$118,940	%
Administrative expenses	80,080	%	81,380	%
Total operating expenses	$225,680	%	$200,320	%
Income from operations	$152,880	%	$93,900	%
Other revenue	29,120	%	37,560	%
Income before income tax	$182,000	%	$131,460	%
Income tax expense	72,800	%	50,080	%
Net income	$109,200	%	$81,380	%

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

Solution

Tri-Comic Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2 Amount	20Y2 Percent	20Y1 Amount	20Y1 Percent
Sales	$   728,000.00	100%	$   626,000.00	100%
Cost of goods sold	$   349,440.00	48%	$   331,780.00	53%
Gross profit	$   378,560.00	52%	$   294,220.00	47%
Selling expenses	$   145,600.00	20%	$   118,940.00	19%
Administrative expenses	$     80,080.00	11%	$    81,380.00	13%
Total operating expenses	$   225,680.00	31%	$   200,320.00	32%
Income from operations	$   152,880.00	21%	$    93,900.00	15%
Other revenue	$     29,120.00	4%	$    37,560.00	6%
Income before income tax	$   182,000.00	25%	$   131,460.00	21%
Income tax expense	$     72,800.00	10%	$    50,080.00	8%
Net income	$   109,200.00	15%	$    81,380.00	13%

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