Question

McKenzie Sales, Ltd. Comparative Income Statement
	This Year			Last Year
Sales	$	7,300,000		$	5,548,000
Cost of goods sold		4,620,000			3,510,500
Gross margin		2,680,000			2,037,500
Selling and administrative expenses:
Selling expenses		1,381,000			1,076,500
Administrative expenses		705,000			618,000
Total expenses		2,086,000			1,694,500
Net operating income		594,000			343,000
Interest expense		105,000			87,000
Net income before taxes	$	489,000		$	256,000

Members of the company’s board of directors are surprised to see that net income increased by only $233,000 when sales increased by $1,752,000.

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 = Dollar amount of individual items/ Sales dollars

McKenzie Sales, Ltd.
Comparative Income Statement
	This Year	Percentage	Last Year	Percentage
Sales	7,300,000	100.0%	5,548,000	100.0%
Cost of goods sold	4,620,000	63.3%	3,510,500	63.3%
Gross margin	2,680,000	36.7%	2,037,500	36.7%
Selling and administrative expenses:
Selling expenses	1,381,000	18.9%	1,076,500	19.4%
Administrative expenses	705,000	9.7%	618,000	11.1%
Total expenses	2,086,000	28.6%	1,694,500	30.5%
Net operating income	594,000	8.1%	343,000	6.2%
Interest expense	105,000	1.4%	87,000	1.6%
Net income before taxes	489,000	6.7%	256,000	4.6%