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

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 4,720,000 3,515,500 Gross margin 2,640,000 2,078,100 Selling and administrative expenses: Selling expenses 1,377,000 1,080,500 Administrative expenses 704,000 617,500 Total expenses 2,081,000 1,698,000 Net operating income 559,000 380,100 Interest expense 103,000 92,000 Net income before taxes $ 456,000 $ 288,100 Members of the company’s board of directors are surprised to see that net income increased by only $167,900 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).)

Explanation / Answer

McKenzie Sales Limited, Toronto All Amounts in $ Common Size Income Statements, expressed as a Percentage of Sales Last % of This % of Year Sales Year Sales Sales 7360000 100.0% 5593600 100.0% Cost of Goods Sold 4720000 64.1% 3515500 62.8% Gross Margin 2640000 35.9% 2078100 37.2% Selling and Administrative Expenses 0.0% 0.0% Selling Expenses 1377000 18.7% 1080500 19.3% Administrative Expenses 704000 9.6% 617500 11.0% Total Expenses 2081000 28.3% 1698000 30.4% 0.0% 0.0% Net Operating Income 559000 7.6% 380100 6.8% Interest Income 103000 1.4% 92000 1.6% Net Income before Taxes 456000 6.2% 288100 5.2%

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