The president is concerned that net income is down even though sales have increa

Question

The president is concerned that net income is down even though sales have increased during the year. The president is also concerned that administrative expenses have increased because the company made a concerted effort to cut waste out of the organization.

Express each year's income statement in common-size percentages.

A comparative income statement is given below for Ryder Company: Ryder Company Comparative Income Statement This Year Last Year $7,340,000 $5,505,000 4,990,400 3,512,500 Sales Cost of goods sold Gross margin Selling and administrative expenses: 2,349,600 1,992,500 Selling expenses Administrative expenses 1,473,000 1,074,000 707,500 Total selling and administrative expenses2,180,500 169,100 614,500 1,688,500 304,000 Net operating income Interest expense 97,000 86,000 Net income before taxes $ 72,100 218,000

Explanation / Answer

Solution.

Income statement for each year in common size percentages.

Particulars This year Last Year Sales 100% 100% Cost of goods sold 67.99 63.8 Gross margin 32.01 36.2 Selling and admin Expenses: Selling expenses 20.07 19.51 Administrative expenses 9.63 11.1625 Total selling and admin cost 29.70 30.67 Net opereting income 2.3 5.5222 Interest expense 1.32 1.5622 Net income before taxes 0.98 3.96 Total Expense                        99.01               96.03

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