Question

In: Accounting

A comparative income statement is given below for McKenzie Sales, Ltd., of Toronto: McKenzie Sales, Ltd....

A comparative income statement is given below for McKenzie Sales, Ltd., of Toronto:

McKenzie Sales, Ltd.
Comparative Income Statement
This Year Last Year
Sales $ 7,360,000 $ 5,593,600
Cost of goods sold 4,680,000 3,509,500
Gross margin 2,680,000 2,084,100
Selling and administrative expenses:
Selling expenses 1,388,000 1,075,500
Administrative expenses 705,500 616,500
Total expenses 2,093,500 1,692,000
Net operating income 586,500 392,100
Interest expense 101,000 94,000
Net income before taxes $ 485,500 $ 298,100

Members of the company’s board of directors are surprised to see that net income increased by only $187,400 when sales increased by $1,766,400.

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).)

Solutions

Expert Solution

Answer :

Income statement in common size Percentage :

This year Percentage of sales Last year Percentage of sales
Sales $7,360,000 100% $5,593,600 100%
Cost of goods sold $4,680,000 63.5% $3,509,500 62.7%
Gross margin $2,680,000 36.4% $2,084,100 37.2%
Selling and administrative expense :
Selling expense $1,388,000 18.8% $1,075,500 19.2%
Administrative expense $7,05,500 9.5% $6,16,500 11.0%
Total expenses $2,093,500 28.4% $1,692,000 30.2%
Net operating income $5,86,500 7.9% $3,92,100 7.0%
Interest expense $1,01,000 1.3% $94,000 1.6%
Net IncomeIncome before taxes $4,85,500 6.5% $2,98,100 5.3%

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