Vertical Analysis of Income Statement

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $17,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement:

Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$597,000		$513,000
Cost of goods sold	304,470		292,410
Gross profit	$292,530		$220,590
Selling expenses	$125,370		$102,600
Administrative expenses	65,670		66,690
Total operating expenses	$191,040		$169,290
Income from operations	$101,490		$51,300
Other income	17,910		15,390
Income before income tax	$119,400		$66,690
Income tax expense	47,760		25,650
Net income	$71,640		$41,040

Required:

1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Enter percentages as whole numbers. Enter all amounts as positive numbers.

Tri-Comic Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2 Amount	20Y2 Percent	20Y1 Amount	20Y1 Percent
Sales	$597,000	%	$513,000	%
Cost of goods sold	304,470	%	292,410	%
Gross profit	$292,530	%	$220,590	%
Selling expenses	125,370	%	102,600	%
Administrative expenses	65,670	%	66,690	%
Total operating expenses	$191,040	%	$169,290	%
Income from operations	$101,490	%	$51,300	%
Other income	17,910	%	15,390	%
Income before income tax	$119,400	%	$66,690	%
Income tax expense	47,760	%	25,650	%
Net income	$71,640	%	$41,040	%

2. The vertical analysis indicates that the costs other than selling expenses (cost of goods sold and administrative expenses) as a percentage of sales. As a result, net income as a percentage of sales . The sales promotion campaign appears to have been . While selling expenses as a percent of sales slightly, the cost was more than made up for by sales.