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	$	7,360,000		$	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).)

Answer 1

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%