Question

Express the following comparative income statements in common-size percent. Using the common-size percentages, which item is most responsible for the decline in net income?
GOMEZ CORPORATION
Comparative Income Statements
For Years Ended December 31, 2015 and 2014
2015 2014
$ % $ %
Sales $750,000 $695,000
Cost of goods sold 568,100 288,800
Gross profit 181,900 406,200
Operating expenses 128,000 272,000
Net income $53,900 $134,200

Answer 1

Answer:

Cost of goods sold.

Explanation:

GOMEZ CORPORATION

Comparative Income Statements

Particulars                          amount (2015)    %             amount (2014)      %

Sales                                   $750,000           100          $695,000           100

Cost of goods sold             (568,100)           (75.75)      (288,800)           (41.55)

Gross profit                         181,900                24.25       406,200            58.45

Operating expenses          (128,000)             (17)           (272,000)           (39)    

Net income                         $53,900              7.25         $134,200           19.45

From the above calculation, we can say that the cost of goods sold decreases the net income. In this math, due to the increase in the cost of goods sold, net income declines.