Analysis to Identify Favorable and Unfavorable Trends
The following information was developed from the financial statements of Slow Time, Inc. At the beginning of 2011, the company’s former supplier went bankrupt, and the company began buying merchandise from another supplier.
| 2011 | 2010 |
Gross profit on sales | $720,000 | $800,000 |
Income before income tax | 200,000 | 220,000 |
Net income | 150,000 | 170,000 |
Net income as a percentage of net sales | 8% | 10% |
Instructions
a. Compute the net sales for each year.
b. Compute the cost of goods sold in dollars and as a percentage of net sales for each year.
c. Compute operating expenses in dollars and as a percentage of net sales for each year. (Income taxes expense is not an operating expense.)
d. Prepare a condensed comparative income statement for 2010 and 2011. Include the following items: net sales, cost of goods sold, gross profit, operating expenses, income before income tax, income tax expense, and net income. Omit earnings per share statistics.
e. Identify the significant favorable and unfavorable trends in the performance of Slow Time, Inc. Comment on any unusual changes.
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