Question

   

		Year 2				Year 1
Sales	$	529,000			$	420,000
Cost of goods sold		330,000				268,000
Gross profit	$	199,000			$	152,000
Operating expenses		130,000				116,000
Net income	$	69,000			$	36,000

a. Prepare common size income statements for Price Company, a sole proprietorship, for the two years shown as above by converting the dollar amounts into percentages. For each year, sales will appear as 100 percent and other items will be expressed as a percentage of sales. (Income taxes are not involved as the business is not incorporated.)

b. State whether the changes from year 1 to year 2 are favorable or unfavorable.

Complete this question by entering your answers in the tabs below.

Required A

Prepare common size income statements for Price Company, a sole proprietorship, for the two years shown as above by converting the dollar amounts into percentages. For each year, sales will appear as 100 percent and other items will be expressed as a percentage of sales. (Income taxes are not involved as the business is not incorporated.) (Round your percentage value answers to 2 decimal places. i.e. 0.1234 as 12.34%.)

	Year 2 Year 1 Sales % % Cost of goods sold % % Gross profit % % Operating expenses % % Net income % %

• Required B

State whether the changes from year 1 to year 2 are favorable or unfavorable.

Sales	Favorable or unfavorable
Gross Profit	Favorable or unfavorable

Answer 1

	Year 2	Year 1
Sales	100.00%	100.00%
Cost of goods sold	62.38%	63.81%
Gross Profit	37.62%	36.19%
Operating expenses	24.57%	27.62%
Net Income	13.04%	8.57%
Sales - Favourable as the Sales amount has increased from $420,000 to $529,000 in Year 2
Gross Profit - Favourable as the Gross profit rate has increased