Question

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $18,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement:

Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$627,000		$539,000
Cost of goods sold	288,420		269,500
Gross profit	$338,580		$269,500
Selling expenses	$125,400		$102,410
Administrative expenses	68,970		70,070
Total operating expenses	$194,370		$172,480
Income from operations	$144,210		$97,020
Other revenue	18,810		32,340
Income before income tax	$163,020		$129,360
Income tax expense	62,700		53,900
Net income	$100,320		$75,460

Required:

1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Enter percentages as whole numbers. Enter all amounts as positive numbers.

Tri-Comic Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2 Amount	20Y2 Percent	20Y1 Amount	20Y1 Percent
Sales	$627,000	%	$539,000	%
Cost of goods sold	288,420	%	269,500	%
Gross profit	$338,580	%	$269,500	%
Selling expenses	$125,400	%	$102,410	%
Administrative expenses	68,970	%	70,070	%
Total operating expenses	$194,370	%	$172,480	%
Income from operations	$144,210	%	$97,020	%
Other revenue	18,810	%	32,340	%
Income before income tax	$163,020	%	$129,360	%
Income tax expense	62,700	%	53,900	%
Net income	$100,320	%	$75,460	%

2. The vertical analysis indicates that the costs other than selling expenses (cost of goods sold and administrative expenses) improved or deteriorated as a percentage of sales. As a result, net income as a percentage of sales increased or decreased . The sales promotion campaign appears to have been successful or unsuccessful . While selling expenses as a percent of sales increased or decreased slightly, the increased or decreased cost was more than made up for by increased or decreased sales.

Answer 1

Solution

Tri-Comic Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2 Amount	20Y2 Percent	20Y1 Amount	20Y1 Percent
Sales	$627,000.00	100%	$539,000.00	100%
Cost of goods sold	$288,420.00	46%	$269,500.00	50%
Gross profit	$338,580.00	54%	$269,500.00	50%
Selling expenses	$125,400.00	20%	$102,410.00	19%
Administrative expenses	$ 68,970.00	11%	$ 70,070.00	13%
Total operating expenses	$194,370.00	31%	$172,480.00	32%
Income from operations	$144,210.00	23%	$ 97,020.00	18%
Other revenue	$ 18,810.00	3%	$ 32,340.00	6%
Income before income tax	$163,020.00	26%	$129,360.00	24%
Income tax expense	$ 62,700.00	10%	$ 53,900.00	10%
Net income	$100,320.00	16%	$ 75,460.00	14%

.Requirement 2

The vertical analysis indicates that the costs other than selling expenses (cost of goods sold and administrative expenses) improved as a percentage of sales. As a result, net income as a percentage of sales increased . The sales promotion campaign appears to have been successful . While selling expenses as a percent of sales increased slightly, the increased cost was more than made up for by increased sales.