Question

9. Revenue and expense data for Tower Technologies are as follows: 20121 2011 Sales $500,000 $440,000 Cost of goods sold 325,000 242,000 Selling expenses 70,000 79,200 Administrative expenses 75,000 70,400 Income tax expense 25,000 26,400 Required: (1) Prepare an income statement in comparative form, stating each item for both 2012 and 2011 as a percent of sales (vertical analysis). (Round your answers to one decimal place.) (2) Comment on the significant changes disclosed by the comparative income statement. ANS:

Answer 1

Answer :-

1)

Comparative Income Statement
	2012 Amount	2012 %	2011 Amount	2011 %
Sales	$500,000	100%	$440,000	100%
Cost of goods sold	$325,000	65%	$242,000	55%
Gross Profit ( sales - Cost of good sold)	$175,000	35%	$198,000	45%
Operating Expense :
Selling Expense	$70,000	14%	$79,200	18%
Administrative Expenses	$75,000	15%	$70,400	16%
Total Operating Expenses	$145,000	29%	$149,600	34%
Income from operations( Gross Profit - Total Operating expenses)	$30,000	6%	$48,400	11%
Income tax expense	$25,000	5%	$26,400	6%
Net Income ( Income from operations - Income taxes Expense)	$5,000	1%	$22,000	5%

Note :-

Precent are calculated on the basis of sales for that year.

Ex - 2012% of Cost of Good sold =( Cost of good sold Amount in 2012 / Sales in 2012) × 100

Like that all Percentage is calculated.

2)In 2012 the cost of goods sold is increased by 10% as compared to 2011 which result in decrease of Net Income by 4% in 2012. In 2012 , The selling Expense is decrease by 4% and Administrative expenses is decrease by 1% .

Which show that the changes in Net income reason was increased in Cost of good sold by 10% .