Question

Problems 12.14 (LO 2) Excel Comparing companies of different size Gallivan, Inc., and Tucker Ltd. are both food service distributors. As their adapted income statements in $ millions) show, Gallivan's sales revenue was more than double that of Tucker. Tucker Gallivan Sales $6,630.5 $14,807.2 Cost of goods sold 4,252.2 10,109.3 Gross profit 2,378.3 4,697.9 Selling, general, & administrative expenses 1,596.2 3,207.1 Net operating income 782.1 1,490.8 Other expense 2.6 265-5 Income before taxes 779.5 1,225-3 Income tax expense 291.2 458.6 Net income $ 488.3 $ 766.7 Required a. Prepare a common-size income statement for each company. Express all percentages using one decimal place. Your answers may not add perfectly due to rounding. b. Which company did the better job of managing expenses? How did you reach your conclusion?

Answer 1

Answer

• Requirement [a]

	Tucker		Gallivan
	Amount	% of Sales	Amount	% of Sales
Sales	$6,630.50	100.0%	$14,807.20	100.0%
Cost of Goods Sold	$4,252.20	64.1%	$10,109.30	68.3%
Gross Profits	$2,378.30	35.9%	$4,697.90	31.7%
Selling & Gen & Admin expenses	$1,596.20	24.1%	$3,207.10	21.7%
Net Operating income	$782.10	11.8%	$1,490.80	10.1%
Other expense	$2.60	0.0%	$265.50	1.8%
Income before taxes	$779.50	11.8%	$1,225.30	8.3%
Income tax expense	$291.20	4.4%	$458.60	3.1%
Net Income	$488.30	7.4%	$766.70	5.2%

• Requirement [b]
  Gallivon better managed its expenses because the expenses’ % of total sales is LOWER than ‘Tucker’s’, leading to higher Net Income percentage of sale.