For 2014, Fielder Industries Inc. initiated a sales promotion campaign that incl

Question

For 2014, Fielder Industries Inc. initiated a sales promotion campaign that included the expenditure of an additional $40,000 for advertising. At the end of the year, Leif Grando, the president, is presented with the following condensed comparative income statement:1. FIELDER INDUSTRIES INC. Comparative Income Statement For the Years Ended December 31, 2014 and 2013 2014 2013 Amount Percent Amount Percent Sales $1,325,000 $1,200,000Sales returns and allowances 25,000 20,000Net sales $1,300,000 $1,180,000Cost of goods sold 682,500 613,600Gross profit $617,500 $566,400Selling expenses $260,000 $188,800Administrative expenses 169,000 177,000Total operating expenses $429,000 $365,800Income from operations $188,500 $200,600Other income 78,000 70,800Income before income tax $266,500 $271,400Income tax 117,000 106,200Net income $149,500 $165,200 14.0% 2. [Key essay answer here] Instructions: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. 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

1)

2) On comparing the relatioships between vertical analysis of two years it can be concluded that there is significant increase in selling expenses around 4% (i.e.20-16) due to massive expenditure of $40000 in advertising. However the net profit and sales has not been increased proportionally. Although there is decrease of 2% in admistration cost yet operating expenses has increased by 2% and income from operation declined by 2.5% due to increase in Advertising expenses.

Fielder Industries Inc. Comparative Income Statement For the Years Ended December 31, 2014 and 2013 2014 2013 Amount Percent Amount Percent Sales          1,325,000 101.9%              1,200,000 101.7% Sales returns and allowances                25,000 1.9%                    20,000 1.7% Net sales          1,300,000 100.0%              1,180,000 100.0% Cost of goods sold              682,500 52.5%                 613,600 52.0% Gross profit              617,500 47.5%                 566,400 48.0% Selling expenses              260,000 20.0%                 188,800 16.0% Administrative expenses              169,000 13.0%                 177,000 15.0% Total operating expenses              429,000 33.0%                 365,800 31.0% Income from operations              188,500 14.5%                 200,600 17.0% Other income                78,000 6.0%                    70,800 6.0% Income before income tax              266,500 20.5%                 271,400 23.0% Income tax              117,000 9.0%                 106,200 9.0% Net income              149,500 11.5%                 165,200 14.0%

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