Vertical Analysis of Income Statement

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

	Current Year		Previous Year
Sales	$540,000		$454,000
Cost of goods sold	313,200		231,540
Selling expenses	91,800		90,800
Administrative expenses	97,200		77,180
Income tax expense	16,200		22,700

Question Content Area

a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

Innovation Quarter Inc. Comparative Income Statement For the Years Ended December 31

	Current year Amount	Current year Percent	Previous year Amount	Previous year Percent
Sales	$540,000	fill in the blank 55bd78fb3061fd1_1%	$454,000	fill in the blank 55bd78fb3061fd1_2%
Cost of goods sold	313,200	fill in the blank 55bd78fb3061fd1_3%	231,540	fill in the blank 55bd78fb3061fd1_4%
Gross profitIncome from operationsNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%
Selling expenses	91,800	fill in the blank 55bd78fb3061fd1_10%	90,800	fill in the blank 55bd78fb3061fd1_11%
Administrative expenses	97,200	fill in the blank 55bd78fb3061fd1_12%	77,180	fill in the blank 55bd78fb3061fd1_13%
Gross profitIncome from operationsNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%
Gross profitIncome from operationsNet incomeTotal operating expenses	- Select -	- Select -%	- Select -	- Select -%
Income tax expense	16,200	fill in the blank 55bd78fb3061fd1_24%	22,700	fill in the blank 55bd78fb3061fd1_25%
Gross profitIncome from operationsNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%

Question Content Area

b. The vertical analysis indicates that the cost of goods sold as a percent of sales

increaseddecreased

by 7 percentage points, while selling expenses

increaseddecreased

by 3 percentage points, and administrative expenses

increaseddecreased

by 1 percentage points. Thus, net income as a percent of sales

increaseddecreased

by 3 percentage points.