Question

Revenue and expense data for the current calendar year for Tannenhill Company and for the electronics industry are as follows. Tannenhill’s data are expressed in dollars. The electronics industry averages are expressed in percentages. 1 Tannenhill Company Electronics Industry Average 2 Sales $4,720,000.00 100.0% 3 Cost of goods sold 2,454,400.00 57.0 4 Gross profit $2,265,600.00 43.0% 5 Selling expenses $1,250,800.00 23.5% 6 Administrative expenses 708,000.00 13.0 7 Total operating expenses $1,958,800.00 36.5% 8 Operating income $306,800.00 6.5% 9 Other revenue 102,000.00 2.2 10 $408,800.00 8.7% 11 Other expense 62,000.00 1.3 12 Income before income tax $346,800.00 7.4% 13 Income tax expense 72,000.00 1.5 14 Net income $274,800.00 5.9% A. Prepare a common-sized income statement comparing the results of operations for Tannenhill Company with the industry average. Round percentages to one decimal place. Enter all amounts as positive numbers. B. As far as the data permit, comment on significant relationships revealed by the comparisons.

Answer 1

Common Size Income Statement
	Tannehill Company	Industry Average
Sales	$4,720,000	100.0%	100.0%
Less: Cost of Goods Sold	$2,454,400	52.0%	57.0%
Gross Profit	$2,265,600	48.0%	43.0%
Less: Operating Expense
Selllign Expense	$1,250,800	26.5%	23.5%
Administrative Expense	$708,000	15.0%	13.0%
Total Operating Expense	$1,958,800	41.5%	36.5%
Operating Income	$306,800	6.5%	6.5%
Other Revenue	$102,000	2.2%	2.2%
	$408,800	8.7%	8.7%
Less: Other Expennse	$62,000	1.3%	1.3%
Income before Income Tax	$346,800	7.3%	7.4%
Less: Income Tax Expense	$72,000	1.5%	1.5%
Net Income	$274,800	5.8%	5.9%

Income of T COmpany is slightly lower as compare to Industry average despite there is higher Gross margin as compare to industry due to higher operating expense in T COmpany.