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	$	7,380,000		$	5,608,800
Cost of goods sold		4,650,000			3,512,000
Gross margin		2,730,000			2,096,800
Selling and administrative expenses:
Selling expenses		1,400,000			1,075,000
Administrative expenses		708,500			613,500
Total expenses		2,108,500			1,688,500
Net operating income		621,500			408,300
Interest expense		105,000			91,000
Net income before taxes	$	516,500		$	317,300

Members of the company’s board of directors are surprised to see that net income increased by only $199,200 when sales increased by $1,771,200.

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).)

Answer 1

Correct Answer:

McKenzie Sales, Ltd
Common size analysis
	This year		Last year
Sales	$ 73,80,000.00	100.0%	$ 56,08,800.00	100.0%
Cost of Goods Sold	$ 46,50,000.00	63.0%	$ 35,12,000.00	62.6%
Gross Profit	$ 27,30,000.00	37.0%	$ 20,96,800.00	37.4%
Selling and administrative expenses
Selling Expenses	$ 14,00,000.00	19.0%	$ 10,75,000.00	19.2%
Administrative Expenses	$    7,08,500.00	9.6%	$    6,13,500.00	10.9%
Total Expenses	$ 21,08,500.00	28.6%	$ 16,88,500.00	30.1%
Net Operating Income	$    6,21,500.00	8.4%	$    4,08,300.00	7.3%
Interest Expense	$    1,05,000.00	1.4%	$       91,000.00	1.6%
Net income before taxes	$    5,16,500.00	7.0%	$    3,17,300.00	5.7%

End of Answer.

Thanks