Using Common Size Statements}

The following statement of earnings and vertical analysis data are available for Colfer Audio Products:

\section*{Required:}
1. CONCEPTUAL CONNECTION Suggest why net income declined from \(\$ 273,200\) to \(\$ 41,600\) while the cost of goods sold percentage decreased each year and selling and administrative expenses remained nearly constant.
2. CONCEPTUAL CONNECTION Determine what could cause sales to decline while the gross margin percentage increases.
\section*{Problem

Transcribed Image Text:

Colfer Audio Prodi.cts Consolidated Statement of Earnings 2018 Year Ended June 30. 2017 2016 (in thousands) Amount % Amount % Amount * Sales $2,970.0 100 0 $3,465 0 100.0 $3,960.0 100.0 Other income, net 23./ 0.8 34.6 1.0 39.6 1.9 Total revenues 2,993.7 100.8 3,499.6 101.0 3,999.6 101.0 Costs and expenses: Cost of goods sold Selling and administrative Interest 1,303.8 43.9 1,566.2 45.7 1,920.6 48.5 1,571.1 52.9 1,593.9 46.0 1,564.2 39.5 62.4 2.1 65.8 1.9 59.4 1.5 Total costs and expenses 2,937.3 98.9 3,225.91 93.1 3,544,2 89.5 Income before income taxes 56.4 1.9 273.7 7.9 455.4 11.5 Income tax expense 14.8 0.5 107.4 3.1 182.2 4.6 Net income $ 41.6 1.4 $ 166.3 4.B $ 273.2 6.9