Question

Revenue and expense data for Emerging Technologies are as follows:

	Year 2	Year 1
Sales	$520,000	$440,000
Cost of goods sold	325,000	242,000
Selling expense	70,000	79,200
Administrative expenses	75,000	70,400
Income tax expense	16,500	16,400

(a)                Prepare an income statement in comparative form, stating each item for both years as an amount and as a percent of sales. Round to the nearest whole percent.

(b)                Comment on the significant changes disclosed by the comparative income statement.

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Answer 1

Particular	year 2	year 1
Sales (sales/saless) *100 (x)	100	100
Cost of goods sold(cost of goods sold /sales) *100=(y)	62.5	55
Gross profit(a) =x-y	37.50	45
Selling expense(b)(sales expense/sales) *100	13.46	18
Admin. Expenses(c)(admin exp/sales) *100	14.42	16
Tax expense (d)(tax expense/sales) *100	3.17	3.73
Net profit(a-b-c-d)	6.45	7.27

Comment

There is significant change in the cost of goods sold that has increased by around 7% in one year. There should be analysis of reasons for increase in cost of goods sold.and corrective measure should be taken.

Selling expense has decrease from 18 to 13% .

Tax expense and Admin expense doesn't have any significant changes.