Campers. Inc., manufactures camping equipment. Shown below for the current year are the income statement for the company and a common size summary for the industry in which the company operates. (Notice that the percentages in the right-hand column are not for Campers. Inc., but are average percentages for the industry.)
| Campers, Inc. | Industry Average |
Sales (net) | $20,000,000 | 100% |
Cost of goods sold | 9,800,000 | 57 |
Gross profit on sales | $10,200,000 | 43% |
Operating expenses: |
|
|
Selling | $ 4,200,000 | 16% |
General and administrative | 3,400,000 | 20 |
Total operating expenses | $ 7,600,000 | 36% |
Income tax expense | 1,200,000 | 3 |
Net income | $ 1,400,000 | 4% |
Return on assets : | 23% | 14% |
Instructions
a. Prepare a two-column common size income statement. The first column should show for Campers. Inc.. all items expressed as a percentage of net sales. The second column should show the equivalent industry average for the data given in the problem. The purpose, of this common size statement is to compare the operating results of Campers. Inc., with the average for the industry.
b. Comment specifically on differences between Campers, Inc.. and the industry average with respect to gross profit on sales, selling expenses, general and administrative expenses, operating income, net income, and return on assets. Suggest possible reasons for the more important disparities.
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