Question

Vertical Analysis of Income Statement

For 20Y2, Tri-Comic Company initiated a sales promotion campaignthat included the expenditure of an additional $18,000 foradvertising. At the end of the year, Lumi Neer, the president, ispresented with the following condensed comparative incomestatement:

Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$639,000		$550,000
Cost of goods sold	325,890		308,000
Gross profit	$313,110		$242,000
Selling expenses	$121,410		$99,000
Administrative expenses	63,900		66,000
Total operating expenses	$185,310		$165,000
Income from operations	$127,800		$77,000
Other income	19,170		33,000
Income before income tax	$146,970		$110,000
Income tax expense	57,510		44,000
Net income	$89,460		$66,000

Required:

1. Prepare a comparative income statement forthe two-year period, presenting an analysis of each item inrelationship to sales for each of the years. Enter percentages aswhole numbers. Enter all amounts as positive numbers.

Tri-ComicCompany
ComparativeIncome Statement
For the YearsEnded December 31, 20Y2 and 20Y1
	20Y2 Amount	20Y2 Percent	20Y1 Amount	20Y1 Percent
Sales	$639,000	%	$550,000	%
Cost of goods sold	325,890	%	308,000	%
Gross profit	$313,110	%	$242,000	%
Selling expenses	121,410	%	99,000	%
Administrative expenses	63,900	%	66,000	%
Total operating expenses	$185,310	%	$165,000	%
Income from operations	$127,800	%	$77,000	%
Other income	19,170	%	33,000	%
Income before income tax	$146,970	%	$110,000	%
Income tax expense	57,510	%	44,000	%
Net income	$89,460	%	$66,000	%

2. The vertical analysis indicates that thecosts other than selling expenses (cost of goods sold andadministrative expenses) as a percentage of sales. As a result, netincome as a percentage of sales . The sales promotion campaignappears to have been . While selling expenses as a percent of salesslightly, the cost was more than made up for by sales.