Members of the company’s board of directors are surprised to see that net income
ID: 2531714 • Letter: M
Question
Members of the company’s board of directors are surprised to see that net income increased by only $159,400 when sales increased by $1,754,400.
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).)
A comparative income statement is given below for McKenzie Sales, Ltd., of Toronto: McKenzie Sales, Ltd.Comparative Income Statement This Year Last Year Sales $ 7,310,000 $ 5,555,600 Cost of goods sold 4,700,000 3,513,500 Gross margin 2,610,000 2,042,100 Selling and administrative expenses: Selling expenses 1,377,000 1,079,500 Administrative expenses 707,500 611,500 Total expenses 2,084,500 1,691,000 Net operating income 525,500 351,100 Interest expense 102,000 87,000 Net income before taxes $ 423,500 $ 264,100
Members of the company’s board of directors are surprised to see that net income increased by only $159,400 when sales increased by $1,754,400.
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).)
This Year Last Year Sales 100.0 % 100.0 % Cost of goods sold % 63.2 % Gross margin 100.0 % 36.8 % Selling and administrative expenses: Selling expenses % % Administrative expenses % % Total selling and administrative expenses 0.0 % 0.0 % Net operating income 100.0 % 36.8 % Interest expense % % Net income before taxes 100.0 % 36.8 %Explanation / Answer
This Year
Last Year
Sales
100 %
100 %
Cost of goods sold
64.3 %
63.2 %
Gross margin
35.7 %
36.8 %
Selling and administrative expenses:
Selling expenses
18.8 %
19.4 %
Administrative expenses
9.7 %
11.0 %
Total selling and administrative expenses
28.5 %
30.4 %
Net operating income
7.2 %
6.3 %
Interest expense
1.4 %
1.6 %
Net income before taxes
5.8 %
4.8 %
This Year
Last Year
Sales
100 %
100 %
Cost of goods sold
64.3 %
63.2 %
Gross margin
35.7 %
36.8 %
Selling and administrative expenses:
Selling expenses
18.8 %
19.4 %
Administrative expenses
9.7 %
11.0 %
Total selling and administrative expenses
28.5 %
30.4 %
Net operating income
7.2 %
6.3 %
Interest expense
1.4 %
1.6 %
Net income before taxes
5.8 %
4.8 %