Problem

Campers. Inc., manufactures camping equipment. Shown below for the current year are the in...

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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