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:

Members of the company’s board of directors are surprised to see that net income increased by only $121,100 when sales increased by $1,773,600.

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).)

McKenzie Sales, Ltd.
Comparative Income Statement This Year Last Year Sales $ 7,390,000 $ 5,616,400 Cost of goods sold 4,770,000 3,515,000 Gross margin 2,620,000 2,101,400 Selling and administrative expenses: Selling expenses 1,373,000 1,077,000 Administrative expenses 708,000 614,500 Total expenses 2,081,000 1,691,500 Net operating income 539,000 409,900 Interest expense 97,000 89,000 Net income before taxes $ 442,000 $ 320,900

Explanation / Answer

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).)

Thisyear Last year Sales 100% 100% Cost of goods sold 64.5% 62.6% Gross profit 35.5% 37.4% Selling and administrative expenses: Selling expenses 18.6% 19.2% administrative expenses 9.6% 10.9% Total expenses 28.2% 30.1% Net operating income 7.3% 7.3% Interest expenses 1.3% 1.6% Net income before taxes 6% 5.7%

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