23. Horizontal and Vertical Analyses LO4, 5 Comparative income statements are av
ID: 2760573 • Letter: 2
Question
23.
Horizontal and Vertical Analyses LO4, 5
Comparative income statements are available for Johanna's Fine Furs:
2012
2011
Sales
$850,000
$800,000
Cost of sales
325,000
275,000
Gross profit
525,000
525,000
Operating expenses
175,000
120,000
Operating profit
350,000
405,000
Income tax expense
105,000
121,500
Net income
$245,000
$283,500
Required
Perform horizontal and vertical analyses on each of the items in the above comparative income statements. Round percentages to one decimal point (i.e., 10.1%).
2012
2011
Sales
$850,000
$800,000
Cost of sales
325,000
275,000
Gross profit
525,000
525,000
Operating expenses
175,000
120,000
Operating profit
350,000
405,000
Income tax expense
105,000
121,500
Net income
$245,000
$283,500
Explanation / Answer
Horizontal analyses Vertical analyses 2012 2011 Change in % In $ In % In $ In % Rise / (Fall) in % Sales 850000 100% 800000 100% Cost of sales 325000 38.2% 275000 34.4% 3.9% Gross Profit 525000 61.8% 525000 65.6% -3.9% Operating expenses 175000 20.6% 120000 15.0% 5.6% Operating Profit 350000 41.2% 405000 50.6% -9.4% Income tax expense 105000 12.4% 121500 15.2% -2.8% Net Income 245000 28.8% 283500 35.4% -6.6% Increase in sales by 6.25% results in fall in GP ratio by 3.9% and fall in Net Income by 6.6%
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