Accounting for Exercise 3-18 Using common size statements and ratios to make com
ID: 2568095 • Letter: A
Question
Accounting for Exercise 3-18 Using common size statements and ratios to make comparisons At the end of 2018 the following information is available for Billings and Phoneix companies: Billings Phoneix Sales Cost of goods sold Operating expenses Total assets Stockholders' equity $3,000,000 1,800,000 960,000 3,750,000 1,000,000 $3,000 2,100 780 3,750 1,200 Required a. Prepare common size income statements for each company. b. One company is a high-end retailer, and the other operates a discount store. Which is the dis counter? Support your selection by referring to the common size statements.Explanation / Answer
a.Common size income statement Particulars Billings Phoneix Amount$ % on sales Amount$ % on sales Sales 30,00,000.00 100% 3,000.00 100% Less: Cost of goods sold -18,00,000.00 60.00% -2,100.00 70.00% Gross Margin 12,00,000.00 40.00% 900.00 30.00% Less:Operating expenses -9,60,000.00 32.00% -780.00 26.00% Profit before taxes 2,40,000.00 8.00% 120.00 4.00% b-Identification of discounter 1.High-end retailer refers to high-quality item or more customised item as per customer preferences and expensive too 2.Discounter sales the products at discount 3.Accordingly i-Discounter sales are more than high-end retailer ii-Retailer's %of cost of goods sold on total sales is more than discounter as he spends a lot on producing quality product iii-And discounter needs to spend more operating expenses than retailer All the above conditions are met by Billings Billings is discounter Please give thumbs up if you like the solution