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	$	7,350,000		$	5,586,000
Cost of goods sold		4,780,000			3,511,000
Gross margin		2,570,000			2,075,000
Selling and administrative expenses:
Selling expenses		1,386,000			1,077,000
Administrative expenses		707,000			617,500
Total expenses		2,093,000			1,694,500
Net operating income		477,000			380,500
Interest expense		98,000			85,000
Net income before taxes	$	379,000		$	295,500

Members of the company’s board of directors are surprised to see that net income increased by only $83,500 when sales increased by $1,764,000.

Required:

1. Express each year's income statement in common-size percentages.

Answer 1

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