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	$569,000		$484,000
Cost of merchandise sold	335,710		251,680
Selling expenses	91,040		91,960
Administrative expenses	102,420		82,280
Income tax expense	17,070		24,200

Question Content Area

a. Explain 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.

	Current year Amount	Current year Percent	Previous year Amount	Previous year Percent
Sales	$569,000	fill in the blank _%	$484,000	fill in the blank _%
Cost of merchandise sold	335,710	fill in the blank _%	251,680	fill in the blank _%
Gross profit Income from operations Net incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%
Selling expenses	91,040	fill in the blank _%	91,960	fill in the blank _%
Administrative expenses	102,420	fill in the blank _%	82,280	fill in the blank _%
Gross profit Income from operations Net incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%
Gross profit Income from operations Net incomeTotal operating expenses	- Select -	- Select -%	- Select -	- Select -%
Income tax expense	17,070	fill in the blank _%	24,200	fill in the blank _%
Gross profit Income from operations Net incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%

Question Content Area

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

increased or decreased

by 7 percentage points, while selling expenses

increased or decreased

by 3 percentage points, and administrative expenses

increased or decreased

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

increased or decreased

by 3 percentage points.