Bathrooms, Inc., manufactures bathroom equipment. Shown below for the current year are the income statements for the company and a common size summary for the industry in which the company operates. (Notice that the percentages in the right-hand column are not for Bathrooms, Inc., but are average percentages for the industry.)

Instructions

a. Prepare a two-column common size income statement. The first column should show for Bathrooms, Inc., all items expressed as a percentage of net sales. The second column should show the equivalent industry average for the data given in the problem. The purpose of this common size statement is to compare the operating results of Bathrooms, Inc., with the average for the industry. (Round to the nearest percent.)

b. Comment specifically on differences between Bathrooms, Inc., and the industry average with respect to gross profit on sales, selling expenses, general and administrative expenses, operating income, net income, and return on assets. Suggest possible reasons for the more important disparities.

Transcribed Image Text:

Sales (net) Cost of goods sold Gross profit on sales. Operating expenses: Selling... General and administrative. Total operating expenses Operating income. Income tax expense Net income Return on assets Bathrooms, Industry Inc. Average $12,000,000 100% 7,320,000 70 $ 4,680,000 $ 1,800,000 720,000 $ 2,520,000 $ 2,160,000 30% 10% 24% 20% 12% 120,000 $ 2,040,000