According to the producer price index database maintained by the Bureau of Labor

Question

According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 8.1 percent between 2012 and 2013.

Required:

1. Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages for the income statement of Computer Tycoon Inc. for the year ended December 31, 2013. (Decreases should be indicated by a minus sign. Round your percentage answers to 1 decimal place.)

2-a. Conduct a vertical analysis by expressing each line as a percentage of total revenues. (Round your percentage answers to 1 decimal place.)

2-b. Excluding income tax, interest, and operating expenses, did Computer Tycoon earn more profit per dollar of sales in 2013 compared to 2012?

COMPUTER TYCOON, INC. Income Statements For the Year Ended December 31 Change in 2013 2012 Dollars Percentage Sales Revenue $103,000 $124,500 % Cost of Goods Sold 61,500 72,700 % Gross Profit 41,500 51,800 % Selling, General, and Administrative Expenses 36,300 37,600 % Interest Expense 530 490 % Income before Income Tax Expense 4,670 13,710 % Income Tax Expense 1,000 5,300 % Net Income $3,670 $8,410 %

Explanation / Answer

1 COMPUTER TYCOON, INC. Income Statements For the Year Ended December 31 Change in 2013 2012 Dollars Percentage Sales Revenue $103,000 $124,500 -21500 -17.3% Cost of Goods Sold 61,500 72,700 -11200 -15.4% Gross Profit 41,500 51,800 -10300 -19.9% Selling, General, and Administrative Expenses 36,300 37,600 -1300 -3.5% Interest Expense 530 490 $40 8.2% Income before Income Tax Expense 4,670 13,710 -9040 -65.9% Income Tax Expense 1,000 5,300 -4300 -81.1% Net Income $3,670 $8,410 -4740 -56.4% 2a COMPUTER TYCOON, INC. Income Statements For the Year Ended December 31 2013 2012 Sales Revenue $103,000 100.0% $124,500 100.0% Cost of Goods Sold 61,500 59.7% 72,700 58.4% Gross Profit 41,500 40.3% 51,800 41.6% Selling, General, and Administrative Expenses 36,300 35.2% 37,600 30.2% Interest Expense 530 0.5% 490 0.4% Income before Income Tax Expense 4,670 4.5% 13,710 11.0% Income Tax Expense 1,000 1.0% 5,300 4.3% Net Income $3,670 3.6% $8,410 6.8% b No

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