Vertical Analysis of Income Statement

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $12,000 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 $440,000 $378,000 Cost of goods sold 228,800 215,460 Gross profit $211,200 $162,540 Selling expenses $83,600 $68,040 Administrative expenses 44,000 45,360 Total operating expenses $127,600 $113,400 Income from operations $83,600 $49,140 Other income 17,600 22,680 Income before income tax $101,200 $71,820 Income tax expense 39,600 30,240 Net income $61,600 $41,580

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 $440,000 % $378,000 % Cost of goods sold 228,800 % 215,460 % Gross profit $211,200 % $162,540 % Selling expenses 83,600 % 68,040 % Administrative expenses 44,000 % 45,360 % Total operating expenses $127,600 % $113,400 % Income from operations $83,600 % $49,140 % Other income 17,600 % 22,680 % Income before income tax $101,200 % $71,820 % Income tax expense 39,600 % 30,240 % Net income $61,600 % $41,580 %

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.