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	$	7,320,000		$	5,563,200
Cost of goods sold		4,770,000			3,509,500
Gross margin		2,550,000			2,053,700
Selling and administrative expenses:
Selling expenses		1,395,000			1,081,000
Administrative expenses		709,000			617,500
Total expenses		2,104,000			1,698,500
Net operating income		446,000			355,200
Interest expense		100,000			88,000
Net income before taxes	$	346,000		$	267,200

Members of the company’s board of directors are surprised to see that net income increased by only $78,800 when sales increased by $1,756,800.

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).)

Answer 1

Common Size percentage

	This year	Percentage	Last year	Percentage
Sales	7320000	100%	5563200	100%
Cost of goods sold	4770000	65.2%	3509500	63.1%
Gross profit	2550000	34.8%	2053700	36.9%
Selling and administrative expenses:
Selling expense	1395000	19.1%	1081000	19.4%
Administrative expense	709000	9.7%	617500	11.1%
Total expenses	2104000	28.7%	1698500	30.5%
Net operating income	446000	6.1%	355200	6.4%
Interest expense	100000	1.4%	88000	1.6%
Net income before taxes	346000	4.7%	267200	4.8%