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	$2,240,000			100	%
Cost of goods sold	1,478,400			71
Gross profit	$761,600			29	%
Selling expenses	$448,000			16	%
Administrative expenses	179,200			7
Total operating expenses	$627,200			23	%
Operating income	$134,400			6	%
Other revenue	44,800			2
	$179,200			8	%
Other expense	22,400			1
Income before income tax	$156,800			7	%
Income tax expense	67,200			4
Net income	$89,600			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	$2,240,000	%	100.0%
Cost of goods sold	1,478,400	%	71%
Gross profit	$761,600	%	29%
Selling expenses	$448,000	%	16%
Administrative expenses	179,200	%	7%
Total operating expenses	$627,200	%	23%
Income from operations	$134,400	%	6%
Other revenue	44,800	%	2%
	$179,200	%	8%
Other expense	22,400	%	1%
Income before income tax	$156,800	%	7%
Income tax expense	67,200	%	4%
Net income	$89,600	%	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

Tannenhill Company
Common-Sized Income Statement
For the Year Ended December 31
	Tannenhill	Tannenhill	Electronics
	Company	Company	Industry
	Amount	Percent	Average
Sales	$2,240,000	100%	100.00%
Cost of goods sold	1,478,400	66%	71%
Gross profit	$761,600	34%	29%
Selling expenses	$448,000	20%	16%
Administrative expenses	179,200	8%	7%
Total operating expenses	$627,200	28%	23%
Income from operations	$134,400	6%	6%
Other revenue	44,800	2%	2%
	$179,200	8%	8%
Other expense	22,400	1%	1%
Income before income tax	$156,800	7%	7%
Income tax expense	67,200	3%	4%
Net income	$89,600	4%	3%
Common sized % is as percentage of sales like 1478400/2240000 = 66%
The cost of goods sold is 5% lower than the industry average, but the selling expenses and administrative expenses are 4% and 1% higher than the industry average. The company is managing the cost of manufacturing product better than the industry, and has slightly higher selling and administrative expenses relative to the industry. The combined impact causes net income as a percent of sales to be 1% better than the industry average.