Comparative income statements for Cramer Carpets, a carpet retailer, are given below:

The president is concerned that net income is down in 2012 even though sales have increased during the year. The president is also concerned about the increase in administrative expenses since the company made an effort during the year to eliminate certain positions that overlapped each other.

Required
a. Compute each year€™s income statement in common-size percentages (vertical analysis).
Express results with one decimal place.
b. Comment on the changes between the two years. What do you observe about administrative expenses?
c. What comments and/or suggestions do you have for the president of CramerCarpets?

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Cramer Carpets Comparative Income Statements For the Year Ended December 31,2012 and 2011 2012 Sales Less cost of goods sold Gross margin Selling expenses Administrative expense Total expenses Income from operations Interest expense Net income before taxes $6,600,000 4,300,000 2,300,000 1,220,000 960,000 2,180,000 120,000 99,000 21,000 2011 $5,050,000 3,030,000 2,020,000 884,000 732,000 1,616,000 404,000 50,000 354,000