ACCT 2001 Study Guide - Midterm Guide: Debits And Credits, Operating Expense, Operating Margin
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Common-Sized Income Statement
Revenue and expense data for the current calendar year forTannenhill Company and for the electronics industry are as follows.Tannenhillâs data are expressed in dollars. The electronicsindustry averages are expressed in percentages.
| Tannenhill Company | Electronics Industry Average | ||||
| Sales | $2,240,000 | 100 | % | ||
| Cost of goods sold | 1,478,400 | 71 | |||
| Gross profit | $761,600 | 29 | % | ||
| Selling expenses | $448,000 | 16 | % | ||
| Administrative expenses | 179,200 | 7 | |||
| Total operating expenses | $627,200 | 23 | % | ||
| Operating income | $134,400 | 6 | % | ||
| Other revenue | 44,800 | 2 | |||
| $179,200 | 8 | % | |||
| Other expense | 22,400 | 1 | |||
| Income before income tax | $156,800 | 7 | % | ||
| Income tax expense | 67,200 | 4 | |||
| Net income | $89,600 | 3 | % | ||
a. Prepare a common-sized income statementcomparing the results of operations for Tannenhill Company with theindustry average. If required, round percentages to one decimalplace. Enter all amounts as positive numbers.
| Tannenhill Company | |||
| Common-Sized Income Statement | |||
| Forthe Year Ended December 31 | |||
| Tannenhill Company Amount | Tannenhill Company Percent | Electronics Industry Average | |
| Sales | $2,240,000 | % | 100.0% |
| Cost of goods sold | 1,478,400 | % | 71% |
| Gross profit | $761,600 | % | 29% |
| Selling expenses | $448,000 | % | 16% |
| Administrative expenses | 179,200 | % | 7% |
| Total operating expenses | $627,200 | % | 23% |
| Income from operations | $134,400 | % | 6% |
| Other revenue | 44,800 | % | 2% |
| $179,200 | % | 8% | |
| Other expense | 22,400 | % | 1% |
| Income before income tax | $156,800 | % | 7% |
| Income tax expense | 67,200 | % | 4% |
| Net income | $89,600 | % | 3% |
b. The company is managing the cost ofmanufacturing product than the industry, and has slightly sellingand administrative expenses relative to the industry. The combinedimpact causes net income as a percent of sales to be than theindustry average.
Exercise 11-15 Using contribution margin format income statement to measure the magnitude of operating leverage LO 11-3, 11-4
The following income statement was drawn from the records of Rundle Company, a merchandising firm:
| RUNDLE COMPANY | |||
| Income Statement | |||
| For the Year Ended December 31, 2018 | |||
| Sales revenue (6,500 units à $161) | $ | 1,046,500 | |
| Cost of goods sold (6,500 units à $87) | (565,500 | ) | |
| Gross margin | 481,000 | ||
| Sales commissions (5% of sales) | (52,325 | ) | |
| Administrative salaries expense | (81,000 | ) | |
| Advertising expense | (33,000 | ) | |
| Depreciation expense | (44,000 | ) | |
| Shipping and handling expenses (6,500 units à $2) | (13,000 | ) | |
| Net income | $ | 257,675 | |
Required
Reconstruct the income statement using the contribution margin format.
Calculate the magnitude of operating leverage.
Use the measure of operating leverage to determine the amount of net income Rundle will earn if sales increase by 20 percent.
Reconstruct the income statement using the contribution margin format.
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Calculate the magnitude of operating leverage. Use the measure of operating leverage to determine the amount of net income Rundle will earn if sales increase by 20 percent. (Round "Operating leverage" to 2 decimal places and round "Net income" answer to nearest whole dollar.)
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Presented below are the financial statements of NoskerCompany.
NOSKER COMPANY | ||||||
Assets | 2014 | 2013 | ||||
| Cash | $35,010 | $20,740 | ||||
| Accounts receivable | 32,070 | 18,800 | ||||
| Inventory | 26,880 | 20,670 | ||||
| Equipment | 59,560 | 77,390 | ||||
| Accumulated depreciationâequipment | (29,580 | ) | (23,200 | ) | ||
| Total | $123,940 | $114,400 | ||||
Liabilities and Stockholdersâ Equity | ||||||
| Accounts payable | $28,050 | $ 16,770 | ||||
| Income taxes payable | 7,120 | 8,100 | ||||
| Bonds payable | 26,560 | 32,960 | ||||
| Common stock | 18,400 | 13,670 | ||||
| Retained earnings | 43,810 | 42,900 | ||||
| Total | $123,940 | $114,400 | ||||
NOSKER COMPANY | ||
| Sales revenue | $241,860 | |
| Cost of goods sold | 175,230 | |
| Gross profit | 66,630 | |
| Operating expenses | 24,730 | |
| Income from operations | 41,900 | |
| Interest expense | 3,490 | |
| Income before income taxes | 38,410 | |
| Income tax expense | 7,430 | |
| Net income | $30,980 | |
Additional data:
| 1. | Dividends declared and paid were $30,070. | |
| 2. | During the year equipment was sold for $8,440 cash. Thisequipment cost $17,830 originally and had a book value of $8,440 atthe time of sale. | |
| 3. | All depreciation expense, $15,770, is in the operatingexpenses. | |
| 4. | All sales and purchases are on account. |
Further analysis reveals the following.
| 1. | Accounts payable pertain to merchandise suppliers. | |
| 2. | All operating expenses except for depreciation were paid incash. |
