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			3,509,500
Gross margin		2,570,000			2,076,500
Selling and administrative expenses:
Selling expenses		1,394,000			1,076,000
Administrative expenses		706,000			611,500
Total expenses		2,100,000			1,687,500
Net operating income		470,000			389,000
Interest expense		100,000			89,000
Net income before taxes	$	370,000		$	300,000

     Members of the company’s board of directors are surprised to see that net income increased by only $70,000 when sales increased by $1,764,000.

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

McKenzie Sales, Ltd.
Common-Size Income Statements
	This Year		Last Year
Sales	7350000	100.0%	5586000	100.0%
Cost of goods sold	4780000	65.0%	3509500	62.8%
Gross margin	2570000	35.0%	2076500	37.2%
Selling and administrative expenses:
Selling expenses	1394000	19.0%	1076000	19.3%
Administrative expenses	706000	9.6%	611500	10.9%
Total expenses	2100000	28.6%	1687500	30.2%
Net operating income	470000	6.4%	389000	7.0%
Interest expense	100000	1.4%	89000	1.6%
Net income before taxes	370000	5.0%	300000	5.4%