Question

A comparative income statement is given below for McKenzie Sales, Ltd., of Toronto:

McKenzie Sales, Ltd. Comparative Income Statement
	This Year			Last Year
Sales	$	7,390,000		$	5,616,400
Cost of goods sold		4,650,000			3,507,500
Gross margin		2,740,000			2,108,900
Selling and administrative expenses:
Selling expenses		1,370,000			1,080,000
Administrative expenses		708,500			617,000
Total expenses		2,078,500			1,697,000
Net operating income		661,500			411,900
Interest expense		99,000			88,000
Net income before taxes	$	562,500		$	323,900

Members of the company’s board of directors are surprised to see that net income increased by only $238,600 when sales increased by $1,773,600.

Required:

1. Express each year's income statement in common-size percentages. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

Answer 1

1.

	This Year	Last Year
Sales	100%	100%
Cost of Goods sold	62.9%	62.5%
Gross Margin	37.1%	37.5%
Selling and administrative expense:
Selling expense	18.5%	19.2%
Administrative expense	9.6%	11.0%
Total selling and administrative expense	28.1%	30.2%
Net operating income	9.0%	7.3%
Interest expense	1.4%	1.6%
Net income before tax	7.6%	5.8%