Answer:
1.
Vertical analysis of The Sports Warehouse's two operating segments.
Equipment Apparel
Amount$ % Amount$ %
sales 1,700,000 100 2,850,000 100
Cost of goods sold 1,100,000 64.7 1,400,000 49.1
Gross profit 600,000 35.3 1,450,000 50.9
Operating expenses 250,000 14.7 500,000 17.5
operating income 350,000 20.6 950,000 33.3
other income/expenses 25,000 1.50 (60,000) 2.1
income before tax 375,000 22.1 890,000 31.22
income tax expense 90,000 5.30 280,000 9.8
net income 285,000 16.8 610,000 21.4
2.
The a) Apparel segment is more profitable than the b) Equipment segment
Explanation:
1.
Vertical analysis ios made by taking a percentage of each lsited items of income statement to a base value. Normally the base value is the sales value. In this question I have calculated all the percentage based on the sales value.
2.
Gross Margin
By comparing the Gross margin of both segments, 50.9% of apparel is more than that of 35.3% of Equipment. So, Apparel segment is more profitable.
Net Margin
By comparing the Net margin of both segments, 21.4% of apparel is more than that of 16.8% of Equipment. So, Apparel segment is more profitable.
