Question

Please add the computation and explanation. Thank you!

A. Convert to a Common Size Statement then prepare an executive summary using the Common Size Statement Sales Cost of Goods Sold Gross Profit Operating Expenses Php 200,000.00 120,000.00 80,000.00 10,000.00 Salaries and Wages Employee's Benefits Sales Commissions Rental Expenses Advertising Professional Fees Travel and Transportation Representation Training/Seminars Light, Water, and Power Office Supplies Depreciation Miscellaneous Total Operating Expenses Operating Profit Add: Non-Operating Income Less: Non-Operating Expenses Net Profit Before Taxes Taxes 2,000.00 5,000.00 5,000.00 5,000.00 3,000.00 2,000.00 2,000.00 5,000.00 5,000.00 3,000.00 3,000.00 2,000.00 52,000.00 28,000.00 2,000.00 6,000.00 24,000.00 6,000.00 Net Profit After Taxes 18,000.00 B. From the Common Size Statement presented below, prepare a horizontal analysis or a comparative analysis from year to year. Common Size Income Statement (In Percentage) Year 2012 2014 2013 Sales 100.0 62.0 100.0 66.0 100.0 Cost of Good Sold 64.0 Gross profit Operating Expenses Operating Profit Non-Operating Profit Non-Operating Expenses Net Profit Before Taxes Taxes 38.0 36.0 34.0 28.0 27.0 26.0 10.0 9.0 8.0 0.0 1.0 5.0 0.0 5.0 6.0 6.0 4.0 2.0 1.5 1.0 0.5 Net Profit After Taxes 4.5 3.0 1.5 C. Compare the Income Statement of SR Corporation and JR Corporation using the Common Size Statement Which one is doing better? SR Corp. 160,000.00 JR Corp. Sales 12,000.00 Cost of Sales 96,000.00 64,000.00 41,600.00 22,400.00 4,800.00 7,200.00 4,200.00 3,000.00 Gross Profit on Sales Operating Expenses Net Income D. Compare performance of BRY Corporation and XYZ Corporation using the Common Size Statement. BRY XYZ Assets 2,250,000.00 300,000.00 800,000.00 900,000.00 2,000,000.00 Current Assets Investment 6,000,000.00 Plant, Property and Equipment Total Assets 6,750,000.00 15,000,000.00 Liabilities 4,000,000.00 3,500,000.00 7,000,000.00 300,000.00 500,000.00 800,000.00 Current Liabilities Long Term Debt Total Liabilities Stockholder's Equity Capital Stock for P10 500,000.00 700,000.00 1,200,000.00 5,000,000.00 3,000,000.00 Retained Earning Total Stockholder's Equity 8,000,000.00 2,000,000.00 Total Liabilities and Stock Equity 15,000,000.00

Answer 1

Part A

Common size statement (in percentage)

Sales	100.00%
Cost of goods sold	60.00%
Gross profit	40.00%
Operating expenses
Salaries and wages	5.00%
Employee’s benefits	1.00%
Sales commissions	2.50%
Rental expenses	2.50%
Advertising	2.50%
Professional fees	1.50%
Travel and transportation	1.00%
Representation	1.00%
Training/seminars	2.50%
Light, water and power	2.50%
Office supplies	1.50%
Depreciation	1.50%
Miscellaneous	1.00%
Total operating expenses	26.00%
Operating profit	14.00%
Add: non-operating income	1.00%
Less: non-operating expenses	3.00%
Net profit before taxes	12.00%
Taxes	3.00%
Net profit after taxes	9.00%

For calculating percentage of each item simply divide it by sales amount

For examples for percentage of office supplies = office supplies / sales = 3000/200000 = 1.50%

Executive Summary

In common size income statement, every account is presented in percentage of the sales value. Sales is assigned 100%. This makes comparison of each item on income statement easy. Net profit margin of the company is 9% which is low and needs to be improved. The percentage of total operating expenses is 26% and this indicates that operating expenses need to be controlled to improve overall profitability.

Part B

Horizontal analysis

Year	2012	2013	2014	Increase/(decrease) in 2013	Increase/(decrease) in 2014
Sales	100	100	100	-	-
Cost of goods sold	62	64	66	2	2
Gross profit	38	36	34	(2)	(2)
Operating expenses	28	27	26	(1)	(1)
Operating profit	10	9	8	(1)	(1)
non-operating profit	1	0	0	(1)	-
non-operating expenses	5	5	6	-	1
Net profit before taxes	6	4	2	(2)	(2)
Taxes	1.5	1	0.5	(0.5)	(0.5)
Net profit after taxes	4.5	3	1.5	(1.5)	(1.5)

Part C

Common size statement

	SR Corp	JR Corp.
Sales	100%	100%
Cost of goods sold	60%	40%
Gross profit	40%	60%
Operating expenses	26%	35%
Net income	14%	25%

Percentage of each item of SR corp are calculated by dividing sales of SR corp.

Percentage of each item of JR corp are calculated by dividing sales of JR corp.

JR Corp is better as its percentage of net income is higher than SR corp.

Part D

	BRY	XYZ
Assets
Current assets	15%	15%
Investment	40%	40%
Plant property and equipment	45%	45%
Total assets	100%	100%
Liabilities
Current liabilities	27%	15%
Long term debt	20%	25%
Total liabilities	47%	40%
Stockholders’ equity
Capital stock for P 10	33%	25%
Retained earnings	20%	35%
Total stockholder’s equity	53%	60%
Total liabilities and stock equity	100%	100%

In common size balance sheet all items are divided by total assets to get their percentage.

The proportion of debt in XYZ is less compared to BRY