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	$440,000		$387,000
Cost of merchandise sold	272,800		216,720
Selling expenses	66,000		69,660
Administrative expenses	74,800		58,050
Income tax expense	8,800		15,480

Question Content Area

a. Prepare 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 $440,000 % $387,000 % Cost of merchandise sold 272,800 % 216,720 \"In $Cl Gross profit 66,000 % 69,660 01,] Income from operations 74,800 % 58,050 01:: Net income Total operating expenses - % $:] Income tax expense 8,800 \"/0 15,480 0In cVal cVal % ||||||| _. $3 $:] b. The vertical analysis indicates that the cost of merchandise sold as a percent of sales ' by 6 percentage points, while selling expenses ' by 3 percentage points, and administrative expenses V by 2 percentage points. Thus, net income as a percent of sales ' by 3 percentage points. Revenue and expense data for the current calendar year for Tannenhill Company and for the electronics industry are as follows. Tannenhill's data are expressed in dollars. The electronics industry averages are expressed in percentages. Electronics Tannenhill Company Industry Average Sales $2,510,000 100 % Cost of merchandise sold 1,681,700 72 Gross profit $828,300 28 % Selling expenses $476,900 15 % Administrative expenses 200,800 7 Total operating expenses $677,700 22 % Income from operations $150,600 6 % Other revenue and expense: Other revenue 50,200 2 Other expense (25,100) 1 Income before income tax expense $175,700 7 % Income tax expense 75,300 5 Net income $100,400 2 % a. Prepare a commonsized income statement comparing the results of operations for Tannenhill Company with the industry average. If required, round percentages to one decimal place. Enter all amounts as positive numbers. Tannenhill Company Common-Sized Income Statement For the Year Ended December 31 Tannenhill Tannenhill Electronics Company Company Industry Amount Percent Average Sales $2,510,000 3 % 100.0% Cost of merchandise sold 1.681.700 \"/0 72% Gross profit $828,300 \"/0 28% Selling expenses $476,900 3 % 15% Administrative expenses 200.800 \"/0 E Total operating expenses $577,700 \"/0 22% Income from operations $150,600 3 % 6% > Other revenue and expense: Other revenue 50,200 3 % 2% Other expense (25,100) % % Income before income tax $175,700 3 % 7% Income tax expense 75,300 % % Net income $100,400 % 2% b. The company is managing the cost of manufacturing product ' than the industry, and has slightly ' selling and V: than the industry average. ( Previous Next ) administrative expenses relative to the industry. The combined impact causes net income as a percent of sales to b Check My Work