Vertical Analysis. Refer to the information of Cuneo Company above. 1- Prepare a

Question

Vertical Analysis. Refer to the information of Cuneo Company above. 1- Prepare a common-size income statement for year 1, 2 and 3 by expressing each line item as a percentage of sale revenue. Cuneo Company Income Statements For years 1, 2, and 3 Year 1: Sales: $1,000,000 Less: Cost of goods sold: (700,000) Gross margin: $300,000 Less operating expenses: Selling expenses: (150,000) Administrative expenses: (50,000) Operating income: $100,000 Less: Interest expenses: (25,000) Income before taxes: $75,000 Year 2: Sales:$1,200,000 Less: Cost of goods sold: (700,000) Gross margin: $500,000 Less operating expenses: Selling expenses: (220,000) Administrative expenses:(60,000) Operating income:220,000 Less: Interest expenses: (25,000) Income before taxes: $195,000 Year 3: Sales: $1,700,000 Less: Cost of goods sold: (1,000,000) Gross margin: $700,000 Less operating expenses: Selling expenses: (250,000) Administrative expenses:(120,000) Operating income: $330,000 Less: Interest expenses: (25,000) Income before taxes: $305,000

Explanation / Answer

Cuneo Company Common Size Income Statement Year 1 Year 2 Year 3 Sales 1000000 1200000 1700000 Less:Cost Of goods Sold 700000 70.0% 700000 58.33% 1000000 58.82% Gross Margin 300000 30.0% 500000 41.67% 700000 41.18% Less:Operaing Expaense Selling Expense 150000 15.00% 220000 18.33% 250000 14.71% Administrative Expense 50000 5.00% 60000 5.00% 120000 7.06% Operating Income 100000 10.00% 220000 18.33% 330000 19.41% Less: Interest Expense 25000 2.50% 25000 2.08% 25000 1.47% Income before taxes 75000 7.50% 195000 16.25% 305000 17.94%

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