Answer:
Young Technologies Inc.
a. Income Statement
Year 2 % Year 1 %
Sales $500,000 100% $440,000 100%
Cost of goods sold 325,000 65% 242,000 55%
Gross profit $175,000 35% $198,000 45%
Selling expense 70,000 14% 79,200 18%
Administrative expenses 75,000 15% 70,400 16%
Income before tax $30,000 6% 48,400 11%
Income tax expense 10,500 2% 16,400 4%
Net income $19,500 4% 32,000 7%
b. The cost of goods sold for Young Technologies Inc. increased by 10 percentage points whereas the gross profit declined 10 percentage points in year 2. Income before tax in year 2 declined 5 percentage points from the year 1 pre-tax income. Also, there was a decline in the net income in year 2 of about 3 percentage points when compared to year 1's.
Explanation:
a) Data and Calculations:
Year 2 Year 1
Sales $500,000 $440,000
Cost of goods sold 325,000 242,000
Selling expense 70,000 79,200
Administrative expenses 75,000 70,400
Income tax expense 10,500 16,400
