Question

Express the following comparative income statements in common-size percents. (Round your percentage answers to 1 decimal place.)

Answer 1

Answer: Cost of Goods sold

Explanation:

Common size analysis refers to making all entries in the income statement, a percentage of sales for that year.

Current Year                                                      Prior Year

Sales                                      100%                           100%

Cost of Goods sold               75.7%                          46.5%

Gross Profit                            24.3%                          53.5%

Operating expenses             17.3%                             35%

Net Income                              7.0%                            18.5%

Looking at the percentages above, one can see that the COGS increased the most from the previous year by going from 46.5% to 75.7% representing an increase of 29.2%.

This had the most impact on Net income as it substantially reduced Gross profit.