Vertical Analysis of Income Statement

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $20,000 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	$729,000		$627,000
Cost of goods sold	328,050		313,500
Gross profit	$400,950		$313,500
Selling expenses	$145,800		$119,130
Administrative expenses	72,900		75,240
Total operating expenses	$218,700		$194,370
Income from operations	$182,250		$119,130
Other income	36,450		18,810
Income before income tax	$218,700		$137,940
Income tax expense	87,480		56,430
Net income	$131,220		$81,510

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	$729,000	%	$627,000	%
Cost of goods sold	328,050	%	313,500	%
Gross profit	$400,950	%	$313,500	%
Selling expenses	145,800	%	119,130	%
Administrative expenses	72,900	%	75,240	%
Total operating expenses	$218,700	%	$194,370	%
Income from operations	$182,250	%	$119,130	%
Other income	36,450	%	18,810	%
Income before income tax	$218,700	%	$137,940	%
Income tax expense	87,480	%	56,430	%
Net income	$131,220	%	$81,510	%

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.