Question

Express the following comparative income statements in common-size percents. (Round your percentage answers to 1 decimal place.)

	GOMEZ CORPORATION Comparative Income Statements For Years Ended December 31 Current Year Prior Year $ % $ % Sales $730,000 $655,000 Cost of goods sold 568,100 284,400 Gross profit 161,900 370,600 Operating expenses 130,400 266,000 Net income $31,500 $104,600

Using the common-size percentages, which item is most responsible for the decline in net income?

Answer 1

GOMEZ CORPORATION
Comparative Income Statements
For Years Ended December 31
	Current Year	Prior Year
	$	%	$	%
Sales	730,000	100%	655,000	100%
Cost of goods sold	568,100	77.82%	284,400	43.42%
Gross profit	161,900	22.18%	370,600	56.58%
Operating expenses	130,400	17.86%	266,000	40.61%
Net income	31,500	4.32%	104,600	15.97%
Cost of goods sold is most responsible for the decline in net income. Because it has increased from 43.42% to 77.82%.