Question

1. Vertical Analysis of Income Statement

   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	$724,000		$623,000
   Cost of goods sold	369,240		348,880
   Gross profit	$354,760		$274,120
   Selling expenses	$137,560		$112,140
   Administrative expenses	72,400		74,760
   Total operating expenses	$209,960		$186,900
   Income from operations	$144,800		$87,220
   Other revenue	28,960		18,690
   Income before income tax	$173,760		$105,910
   Income tax expense	72,400		43,610
   Net income	$101,360		$62,300

   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	$724,000	%	$623,000	%
   Cost of goods sold	369,240	%	348,880	%
   Gross profit	$354,760	%	$274,120	%
   Selling expenses	$137,560	%	$112,140	%
   Administrative expenses	72,400	%	74,760	%
   Total operating expenses	$209,960	%	$186,900	%
   Income from operations	$144,800	%	$87,220	%
   Other revenue	28,960	%	18,690	%
   Income before income tax	$173,760	%	$105,910	%
   Income tax expense	72,400	%	43,610	%
   Net income	$101,360	%	$62,300	%

   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

• [1]

Tri-Comic Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2 Amount	20Y2 Percent	20Y1 Amount	20Y1 Percent
Sales	$724,000	100.0%	$623,000	100.0%
Cost of goods sold	$369,240	51.0%	$348,880	56.0%
Gross profit	$354,760	49.0%	$274,120	44.0%
Selling expenses	$137,560	19.0%	$112,140	18.0%
Administrative expenses	$72,400	10.0%	$74,760	12.0%
Total operating expenses	$209,960	29.0%	$186,900	30.0%
Income from operations	$144,800	20.0%	$87,220	14.0%
Other revenue	$28,960	4.0%	$18,690	3.0%
Income before income tax	$173,760	24.0%	$105,910	17.0%
Income tax expense	$72,400	10.0%	$43,610	7.0%
Net income	$101,360	14.0%	$62,300	10.0%

• [2]

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