Question

Common-Sized Income Statement Revenue and expense data for the current calendar year for Sorenson Electronics Company and for the electronics industry are as follows. The Sorenson Electronics Company data are expressed in dollars. The electronics industry averages are expressed in percentages. Sorenson Electronics Company Electronics Industry Average 101.9 % $1,834,200 34,200 1.9 Sales Sales returns and allowances Net sales Cost of goods sold 100 % $1,800,000 1,098,000 $702,000 Gross profit 34 % 20 % Selling expenses $432,000 Administrative expenses 162,000 $594,000 Total operating expenses Operating income $108,000 36,000 Other income $144,000 Other expense 18,000 Income before income tax Income tax $126,000 54,000 $72,000 Net income 3 %

Answer 1

Sales	$     18,34,200	101.9%
Sales Return and allownaces	$           34,200	1.9%
Net Sales	$     18,00,000	100%
Cost of Good sold	$     10,98,000	61%
Gross Profit	$       7,02,000	39%
Selling Expenses	$       4,32,000	24%
Administrative Expenses	$       1,62,000	9%
Total Operating Expenses	$       5,94,000	33%
Operating Income	$       1,08,000	6%
Other income	$           36,000	2%
	$       1,44,000	8%
Other Expenses	$           18,000	1%
Income before income tax	$       1,26,000	7%
Income tax	$           54,000	3%
Net Income	$           72,000	4%

Percentage is calculated as by taking net sales as base

Answer is
b. The cause of the higher selling expenses as a percent of sales should be investigated