For 2010, Othere Technology Company initiated a sales promotion campaign that in

Question

For 2010, Othere Technology Company initiated a sales promotion campaign that included the expenditure of an additional $20,000 for advertising. At the end of the year, George Wallace, the president, is presentd with the following condensed comparative income statement:

Othere Technology Company
Comparative Income Statement
For the years December 31, 2010 and 2009

2010 2009
sales.................................................$714,000 $612,000
sales return and allowances......................, 14,000 12,000
Net sales............................................$700,000 $600,000
cost of good sold................................... 322,000 312,000
gross profit......................................... $378,000 $288,000
Selling expenses................................... $154,000 $120,000
administrative expenses......................... 70,000 66,000
total operating expenses........................ $224,000 $186,000
income from operations.......................... $154,000 $102,000
other income....................................... 28,000 24,000
income before income tax........................$182,000 $126,000
income tax.......................................... 70,000 60,000
net income.......................................... $112,000 $ 66,000
Instruction
1.Prepare a compartive income statement for the two ear period, presenting an analysis of each item in relationship for each of the years. Round to one decimal place.
2, To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1)

Explanation / Answer

2010 2009 Dollar Increase Percentage Increase Sales 714,000 612,000 102,000 16.67% Sales Returns and Allowances (14,000) (12,000) 2,000 16.67 Net Sales 700,000 600,000 100,000 16.67% Cost of Goods Sold (322,000) (312,000) 10000 3.20% Gross Profit 378,000 288,000 90,000 31.25% Selling Expenses (154,000) (120,000) (34,000) 28.33% Administrative Expenses (70,000) (66,000) (4,000) 6.06% Total Operating Expenses (224,000) (186,000) (38,000) 20.43% Income from Operations 154,000 102,000 52,000 50.98% Other Income 28,000 24,000 4000 16.67% Income before Income Tax 182,000 126,000 56,000 44.44% Income Tax 70,000 60,000 10000 16.67% Net Income 112,000 66,000 46,000 69.69% 2. Although , the sales has increased by 16.67%, Income from operations has increased by 50.98% and net Income by 69.69%.This shows that there is growth in the company's operatons. 2010 2009 Dollar Increase Percentage Increase Sales 714,000 612,000 102,000 16.67% Sales Returns and Allowances (14,000) (12,000) 2,000 16.67 Net Sales 700,000 600,000 100,000 16.67% Cost of Goods Sold (322,000) (312,000) 10000 3.20% Gross Profit 378,000 288,000 90,000 31.25% Selling Expenses (154,000) (120,000) (34,000) 28.33% Administrative Expenses (70,000) (66,000) (4,000) 6.06% Total Operating Expenses (224,000) (186,000) (38,000) 20.43% Income from Operations 154,000 102,000 52,000 50.98% Other Income 28,000 24,000 4000 16.67% Income before Income Tax 182,000 126,000 56,000 44.44% Income Tax 70,000 60,000 10000 16.67% Net Income 112,000 66,000 46,000 69.69%

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