For 2012, Othere Technology Company initiated a sales promotion campaign that in
ID: 2364041 • Letter: F
Question
For 2012, Othere Technology Company initiated a sales promotion campaign that included the expenditure of an additional $24,000 for advertising. At the end of the year, George Wallace, the president, is presented with the following condensed comparative income statement: Othere Technology Company Comparative Income Statement For the Years Ended December 31, 2012 and 2011 2012 2011 Sales $873,650 $766,320 Sales returns and allowances 8,650 22,320 Net sales $865,000 $744,000 Cost of goods sold 415,200 342,240 Gross profit $449,800 $401,760 Selling expenses $181,650 $133,920 Administrative expenses 77,850 89,280 Total operating expenses $259,500 $223,200 Income from operations $190,300 $178,560 Other income 34,600 44,640 Income before income tax $224,900 $223,200 Income tax expense 86,500 89,280 Net income $138,400 $133,920 Instructions: Hide 1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to net sales for each of the years. Enter percentages as whole numbers. OTHERE TECHNOLOGY COMPANY Comparative Income Statement For the Years Ended December 31, 2012 and 2011 2012 Amount 2012 Percent 2011 Amount 2011 Percent Sales $ 873,650 % $ 766,320 % Sales returns and allowances 8,650 22,320 Net sales $ 865,000 % $ 744,000 % Cost of goods sold 415,200 342,240 Gross profit $ 449,800 % $ 401,760 % Selling expenses 181,650 % 133,920 % Administrative expenses 77,850 89,280 Total operating expenses $ 259,500 % $ 223,200 % Income from operations $ 190,300 % $ 178,560 % Other income 34,600 44,640 Income before income tax $ 224,900 % $ 223,200 % Income tax expense 86,500 89,280 Net income $ 138,400 % $ 133,920 %Explanation / Answer
OTHERE TECHNOLOGY COMPANY
Comparative Income Statement
For the Years Ended December 31, 2010 and 2009
2010 2009
Amount Percent Amount Percent
Sales................................................... $ 714,000 102.0% $ 612,000 102.0%
Sales returns and allowances.......... 14,000 2.0 12,000 2.0
Net sales............................................ $ 700,000 100.0% $ 600,000 100.0%
Cost of goods sold............................ 322,000 46.0 312,000 52.0
Gross profit...................................... $ 378,000 54.0% $ 288,000 48.0%
Selling expenses................................ $ 154,000 22.0% $ 120,000 20.0%
Administrative expenses.................. 70,000 10.0 66,000 11.0
Total operating expenses................. $ 224,000 32.0% $ 186,000 31.0%
Income from operations.................. $ 154,000 22.0% $ 102,000 17.0%
Other income.................................... 28,000 4.0 24,000 4.0
Income before income tax............... $ 182,000 26.0% $ 126,000 21.0%
Income tax expense.......................... 70,000 10.0 60,000 10.0
Net income........................................ $ 112,000 16.0% $ 66,000 11.0%
2. The vertical analysis indicates that the costs other than selling expenses (cost of goods sold and administrative expenses) improved as a percentage of sales. As a result, net income as a percentage of sales increased from 11.0% to 16.0%. The sales promotion campaign appears to have been successful. While selling expenses as a percent of sales increased slightly (2%), the increased cost was more than made up for by increased sales.
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