Question

Common-Sized Income Statement

Revenue and expense data for the current calendar year for Tannenhill Company and for the electronics industry are as follows. Tannenhill’s data are expressed in dollars. The electronics industry averages are expressed in percentages.

	Tannenhill Company			Electronics Industry Average
Sales	$1,060,000			100	%
Cost of goods sold	699,600			69
Gross profit	$360,400			31	%
Selling expenses	$212,000			18	%
Administrative expenses	84,800			7
Total operating expenses	$296,800			25	%
Operating income	$63,600			6	%
Other income	21,200			2
	$84,800			8	%
Other expense	10,600			1
Income before income tax	$74,200			7	%
Income tax expense	31,800			4
Net income	$42,400			3	%

a. Prepare a common-sized income statement comparing the results of operations for Tannenhill Company with the industry average. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

Tannenhill Company
Common-Sized Income Statement
For the Year Ended December 31
	Tannenhill Company Amount	Tannenhill Company Percent	Electronics Industry Average
Sales	$1,060,000	%	100.0%
Cost of goods sold	699,600	%	69%
Gross profit	$360,400	%	31%
Selling expenses	$212,000	%	18%
Administrative expenses	84,800	%	7%
Total operating expenses	$296,800	%	25%
Operating income	$63,600	%	6%
Other income	21,200	%	2%
	$84,800	%	8%
Other expense	10,600	%	1%
Income before income tax	$74,200	%	7%
Income tax expense	31,800	%	4%
Net income	$42,400	%	3%

b. The company is managing the cost of manufacturing product   than the industry, and has slightly   selling and administrative expenses relative to the industry. The combined impact causes net income as a percent of sales to be   than the industry average.

Answer 1

Common Size Income Statement
			Tannenhill	Tannenhill	Electronic Industry
			Amount $		%		Average %
Sales			1060000		100.00%		100%
Cost of goods sold		699600		66.00%		69%
Gross Profit		360400		34.00%		31%
Selling expenses		212000		20.00%		18%
Admin expense		84800		8.00%		7%
Total Operating expense	296800		28.00%		25%
Operating income		63600		6.00%		6%
Other Income		21200		2.00%		2%
			84800		8.00%		8%
Other expense		10600		1.00%		1%
Income before income tax	74200		7.00%		7%
Income tax expense		31800		3.00%		4%
Net Income		42400		4.00%		3%
The company is managing the cost of manufacturing product better than the industry.
and has slightly higher selling and admin cost relative to industry.
The combined impact causes net income as a percentage of sales higher than the industry average