Question

According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 8.1 percent between 2012 and 2013.

Required:

1. Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages for the income statement of Computer Tycoon Inc. for the year ended December 31, 2013. (Decreases should be indicated by a minus sign. Round your percentage answers to 1 decimal place.)

COMPUTER TYCOON, INC. Income Statements For the Year Ended December 31 Change in 2013 2012 Dollars Percentage Sales Revenue $103,000 $124,500 % Cost of Goods Sold 61,500 72,700 % Gross Profit 41,500 51,800 % Selling, General, and Administrative Expenses 36,300 37,600 % Interest Expense 530 490 % Income before Income Tax Expense 4,670 13,710 % Income Tax Expense 1,000 5,300 % Net Income $3,670 $8,410 %

2-a. Conduct a vertical analysis by expressing each line as a percentage of total revenues. (Round your percentage answers to 1 decimal place.)

	COMPUTER TYCOON, INC. Income Statements For the Year Ended December 31 2013 2012 Sales Revenue $103,000 % $124,500 % Cost of Goods Sold 61,500 % 72,700 % Gross Profit 41,500 % 51,800 % Selling, General, and Administrative Expenses 36,300 % 37,600 % Interest Expense 530 % 490 % Income before Income Tax Expense 4,670 % 13,710 % Income Tax Expense 1,000 % 5,300 % Net Income $3,670 % $8,410 %

2-b. Excluding income tax, interest, and operating expenses, did Computer Tycoon earn more profit per dollar of sales in 2013 compared to 2012?

	Yes
	No

Answer 1

1
COMPUTER TYCOON, INC.
Income Statements
For the Year Ended December 31
			Change in
	2013	2012	Dollars	Percentage
Sales Revenue	$103,000	$124,500	-21500	-17.3%
Cost of Goods Sold	61,500	72,700	-11200	-15.4%
Gross Profit	41,500	51,800	-10300	-19.9%
Selling, General, and Administrative Expenses	36,300	37,600	-1300	-3.5%
Interest Expense	530	490	$40	8.2%
Income before Income Tax Expense	4,670	13,710	-9040	-65.9%
Income Tax Expense	1,000	5,300	-4300	-81.1%
Net Income	$3,670	$8,410	-4740	-56.4%
2a
COMPUTER TYCOON, INC.
Income Statements
For the Year Ended December 31
	2013		2012
Sales Revenue	$103,000	100.0%	$124,500	100.0%
Cost of Goods Sold	61,500	59.7%	72,700	58.4%
Gross Profit	41,500	40.3%	51,800	41.6%
Selling, General, and Administrative Expenses	36,300	35.2%	37,600	30.2%
Interest Expense	530	0.5%	490	0.4%
Income before Income Tax Expense	4,670	4.5%	13,710	11.0%
Income Tax Expense	1,000	1.0%	5,300	4.3%
Net Income	$3,670	3.6%	$8,410	6.8%
b
No