The current year income statements for the Alpha Company and the Omega Company appear below:?Alpha CompanyOmega CompanyNet sales$ 1,050,000$ 260,000Cost of goods sold475,000107,500Operating expense367,50073,000Required:1. Prepare common size income statements for the Alpha Company and the Omega Company.2. What is the gross margin percentage for each company?3. What is the net income percentage for each company?4. Briefly comment on the pricing policies of each company as well as the ability to control expenses. Disregarding the difference in size, which company appears to be doing a better job?

Question

What will be an ideal response?

Answer 1

1.

2. Gross margin percentage = Gross margin ÷ Net sales:
Alpha Company 54.8%
Omega Company 58.7%
3. Net income percentage = Net income ÷ Net sales:
Alpha Company 19.8%
Omega Company 30.6%
4. The markup percentage is higher for the Omega Company. Omega is able to either charge relatively higher prices or is able to find a very advantageous supply source (or both). The percent of operating expenses is lower for the Omega Company which means that it is doing a good job in managing its expenses. The above information, plus the fact that net income is 30.6 cents per sales dollar, would indicate that Omega is operating in a more efficient and productive manner.