EXERCISE 14-13. Common-Size Income Statements [LO 2] Comparative income statements for Cramer Carpets,a carpet retailer,are given below: Cramer Carpets Comparative Income Statements For the Year Ended December 31,2015,and 2014 2015 2014 Sales $6,600,000 $5,050,000 Less cost of goods sold 4,300,000 3,030,000 Gross margin 2,300,000 2,020,000 Selling expenses 1,220,000 884,000 Administrative expense 960,000 732,000 Total expenses 2,180,000 1,616,000 Income from operations 120,000 404,000 Interest expense 99,000 50,000 Net income before taxes $ 21,000 $ 354,000 The president is concerned that net income is down in 2015 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 years 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?