Preparation of two column income statement
Campers, Inc. manufactures camping equipment. Shown below for the current year is the income statement for the company and a common size summary for the industry in which the company operates. (Notice that the percentages in the right hand column are not for Campers, Inc., but are average percentages for the industry.)
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Campers, Inc.,
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Industry avg.
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Sales (Net)
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$20,000,000
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100%
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cost of goods Sold
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$9,800,000
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57%
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Gross profit on sale
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$10,200,000
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43%
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operating expenses
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|
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Selling
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$4,200,000
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16%
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General and administrative
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$3,400,000
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20%
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Total operating expenses
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$7,600,000
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36%
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Operating Income
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$2,600,000
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7%
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Income tax expenses
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$1,200,000
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3%
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Net income
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$1,400,000
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4%
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Return on Assets
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14%
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Instructions
A.Prepare a two column common size income statement. The first column should show for Campers, Inc., all items expressed as a percentage of net sales. The second column should show the equivalent industry average for the data given in the problem. The purpose of this common size statement is to compare the operating results of Campers, Inc., with the average for the industry.
B.Comment specifically on the difference between Camper's, Inc., and the industry average with respect to gross profit on sales, selling expenses, general and administrative expenses, operating income, net income, and return on assets. Suggest possible reasons for the more important disparities.