Question

Question 5:     4 marks  (3 marks for question 1  and  1 mark for question 2)

Using the following operating data for Liwa Corporation, illustrate vertical analysis.

                                                            2008                    2007           

Net sales                             $350,000            $320,000

Cost of goods sold                200,000              100,000

Gross  profit                           150,000             220,000

Operating expenses              120,000              160,000

Net income                              30,000                60,000

Instructions:

1- Using the data presented for Liwa Company, prepare a schedule showing a vertical analysis for 2007 and 2008 ( use net  sales as base).                                                            (3  marks)

2- Interpret the  percentage of Net income that  you  find for  2008.                      (1 mark)

Answer 1

Ans:

1.Particulars	2007		2008
Amount	Amount	% On net Sales	Amount	% On net Sales
Net Sales (A)	320000	100%	350000	100%
Cost of Goods Sold (B)	100000	31%	200000	57%
Gross Profit (C=A-B)	220000	69%	150000	43%
Operating Expenses (D)	160000	50%	120000	34%
Net Income (C-D)	60000	19%	30000	9%
2.Net Income for the year 2008 is 9% of Net Sales which is decreased from 19% when compared with 2007 Percentage of Net Income on Sales

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