A comparative income statement is given below for McKenzie Sales, Ltd., of Toronto:
McKenzie Sales, Ltd.
Comparative Income Statement
|
This Year |
Last Year |
|
|
|
| Sales |
$ |
8,000,000 |
|
$ |
6,000,000 |
| Cost of goods sold |
|
4,984,000 |
|
|
3,516,000 |
| |
|
|
|
|
|
| Gross margin |
|
3,016,000 |
|
|
2,484,000 |
| |
|
|
|
|
|
| Selling and administrative expenses: |
|
|
|
|
|
| Selling expenses |
|
1,480,000 |
|
|
1,092,000 |
| Administrative expenses |
|
712,000 |
|
|
618,000 |
| |
|
|
|
|
|
| Total expenses |
|
2,192,000 |
|
|
1,710,000 |
| |
|
|
|
|
|
| Net operating income |
|
824,000 |
|
|
774,000 |
| Interest expense |
|
96,000 |
|
|
84,000 |
| |
|
|
|
|
|
| Net income before taxes |
$ |
728,000 |
|
$ |
690,000 |
Members of the company's board of directors are surprised to see that net income increased by only $38,000 when sales increased by two million dollars.
Required:
1. Express each year's income statement in common-size percentages. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
Sales 100.0 % 100.0 %Cost of goods sold 62.3 % 58.6 %Gross margin 37.7 % 41.4 %Selling and administrative expenses: Selling expenses % %Administrative expenses 8.4 % 9.7 %Total selling and administrative expenses 8.4 % 9.7 %Net operating income 29.3 % 31.7 %Interest expense 1.2 % 1.4 %Net income before taxes 28.1 % 30.3
%
Sales 100.0 % 100.0 % Cost of goods sold 62.3 % 58.6 % Gross margin 37.7 % 41.4 % Selling and administrative expenses: Selling expenses % % Administrative expenses 8.4 % 9.7 % Total selling and administrative expenses 8.4 % 9.7 % Net operating income 29.3 % 31.7 % Interest expense 1.2 % 1.4 % Net income before taxes 28.1 % 30.3 %