Question

Vertical Analysis of Income Statement

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $18,000 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	$639,000		$550,000
Cost of goods sold	325,890		308,000
Gross profit	$313,110		$242,000
Selling expenses	$121,410		$99,000
Administrative expenses	63,900		66,000
Total operating expenses	$185,310		$165,000
Income from operations	$127,800		$77,000
Other income	19,170		33,000
Income before income tax	$146,970		$110,000
Income tax expense	57,510		44,000
Net income	$89,460		$66,000

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	$639,000	%	$550,000	%
Cost of goods sold	325,890	%	308,000	%
Gross profit	$313,110	%	$242,000	%
Selling expenses	121,410	%	99,000	%
Administrative expenses	63,900	%	66,000	%
Total operating expenses	$185,310	%	$165,000	%
Income from operations	$127,800	%	$77,000	%
Other income	19,170	%	33,000	%
Income before income tax	$146,970	%	$110,000	%
Income tax expense	57,510	%	44,000	%
Net income	$89,460	%	$66,000	%

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

Comparative Income Statement
			20Y2	20Y2 %	20Y1	20Y1 %
Sales			639000	100%	550000	100%
Cost of Goods sold			325890	51.00%	308000	56.00%
Gross profit			313110	49.00%	242000	44.00%
Selling expense			121410	19.00%	99000	18.00%
Admin expense			63900	10.00%	66000	12.00%
Total operating expense			185310	29.00%	165000	30.00%
Income from operations			127800	20.00%	77000	14.00%
Other Incomes			19170	3.00%	33000	6.00%
Income before income tax			146970	23.00%	110000	20.00%
Income tax expense			57510	9.00%	44000	8.00%
Net Income			89460	14.00%	66000	12.00%
The vertical Analysis indicates that the cost other than selling expenses (cost of goods sold and admin expense)has decreased as a % of sales.
As a result, net income as a percentage of sales has increase to 14%. The sales promotion campaign appears to have been increased.
While selling expense as a percent of sales has increased slightly, the cost was made up fr by sales.