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

The president is concerned that net income is down in 2009 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 Cramer Carpets?

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Cramer Carpets Comparative Income Statements For the Year Ended December 31, 2009 and 2008 2009 Sales $6,500,000 Less: cost of goods sold 4,200,000 2008 $4,800,000 2,900,000 Gross margin 2,300,000 1,900,000 Selling expenses 1,200,000 840,000 Administrative expense 942,500 696,000 Total expenses 2,142,500 1,536,000 Income from operations 157,500 Interest expense 97,500 Net income before taxes $ 60,000 364,000 48,000 $ 316,000