Question

Express the following comparative income statements in common-size percents.
Using the common-size percentages, which item is most responsible for the decline in net income?

Express the following comparative income statements in common-size percents. (Round your percentage answers to 1 decimal place.)

	GOMEZ CORPORATION Comparative Income Statements For Years Ended December 31 Current Year Prior Year $ % $ % Sales $795,000 100.0 $665,000 Cost of goods sold 568,100 284,400 Gross profit 226,900 380,600 Operating expenses 129,200 237,200 Net income $97,700 $143,400

Answer 1

Solution

GOMEZ CORPORATION
Comparative income statement
For the year ended December 31
	Current year		Previous year
	$	%	$	%
Sales	$ 795,000	100.0%	$ 665,000	100.0%
Cost of goods sold	$ 568,100	71.5%	$ 284,400	42.8%
Gross profit	$ 226,900	28.5%	$ 380,600	57.2%
Operating expense	$ 129,200	16.3%	$ 237,200	35.7%
Net income	$ 97,700	12.3%	$ 143,400	21.6%