Osgood Company provided the following income statement for Year 1 and Year 2: Year 2 Year 1Sales$220,000 $160,000 Cost of goods sold 156,000 105,000 Gross margin 64,000 55,000 Less operating expenses: Selling and administrative expenses 26,000 15,000 Interest expense 2,000 3,000 Income before tax 36,000 37,000 Income tax expense 10,800 11,100 Net income$25,200 $25,900 Required:(a) Perform vertical analysis on Osgood's income statements for Year 1 and Year 2. Round your answer to one decimal place (i.e., 22.4%).(b) Comment on the results, comparing Year 1 to Year 2.
What will be an ideal response?
Answers will vary.
(a)
| Year 2 | Year 1 | ||||||
| Sales | 100.0 | % | 100.0 | % | |||
| Cost of goods sold | 70.9 | % | 65.6 | % | |||
| Gross margin | 29.1 | % | 34.4 | % | |||
| Less operating expenses: | |||||||
| Selling and administrative expenses | 11.8 | % | 9.4 | % | |||
| Interest expense | 0.9 | % | 1.9 | % | |||
| Income before tax | 16.4 | % | 23.1 | % | |||
| Income tax expense | 4.9 | % | 6.9 | % | |||
| Net income | 11.5 | % | 16.2 | % | |||
(b) The most important difference between Year 1 and Year 2 is that cost of goods sold was 65.6% of sales in Year 1 and 70.9% in Year 2. As a result, net income was 16.2% of sales in Year 1, and it fell to 11.5% in Year 2.
You might also like to view...
Which of the following are likely to "level the playing field" for women who seem to be at a disadvantage in negotiations?
A. motivational interventions B. cognitive interventions C. situational interventions D. All of these help to level the playing field for women.
In most cases, which of the following is true about a least developed country (LDC)?
A) It has an economy based on agriculture. B) It is landlocked. C) It has a viable middle class. D) It has high literacy levels. E) It has an advanced economic infrastructure.
A unit that is rejected at a quality control inspection point, but that can be reworked and sold, is referred to as a
a. spoiled unit. b. scrap unit. c. abnormal unit. d. defective unit.
A company's adjustment for uncollectible accounts at year-end would include a:
A. Debit to Accounts Receivable. B. Debit to Bad Debt Expense. C. Credit to Accounts Receivable. D. Debit to Allowance for Uncollectible Accounts.