r 20Y6, Blue Buffalo Company initiated a sales promotion campaign that included the ex- penditure of an additional $60,000 for advertising. At the end of the year, Tamara Wasnuk, the president, is presented with the following condensed comparative income statement:
| 1. | BLUE BUFFALO COMPANY | ||||||||||
| Comparative Income Statement | |||||||||||
| For the Years Ended December 31, 20Y6 and 20Y5 | |||||||||||
| 20Y6 | 20Y5 | ||||||||||
| Amount | Percent | Amount | Percent | ||||||||
| Sales | $1,545,000 | $1,224,000 | |||||||||
| Sales returns and allowances | 45,000 | 24,000 | |||||||||
| Net sales | $1,500,000 | $1,200,000 | |||||||||
| Cost of goods sold | 960,000 | 780,000 | |||||||||
| Gross profit | $540,000 | $420,000 | |||||||||
| Selling expenses | $285,000 | $216,000 | |||||||||
| Administrative expenses | 90,000 | 96,000 | |||||||||
| Total operating expenses | $375,000 | $312,000 | |||||||||
| Income from operations | $165,000 | $108,000 | |||||||||
| Other income | 36,000 | 36,000 | |||||||||
| Income before income tax | $201,000 | $144,000 | |||||||||
| Income tax expense (benefit) | 42,000 | 28,800 | |||||||||
| Net income (loss) | $159,000 | $115,200 | |||||||||
Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to net sales for each of the years.
BUFFALO COMPANY
Comparative Income Statement
For the Years Ended December 31, 20Y6 and 20Y5
| Particular | 2016
Amount |
% | 2015
Amount |
% | |
| Sales | 1,545,000 | 1,224,000 | |||
| Sales returns and allowances | 45,000 | 24,000 | |||
| Net sales | 1,500,000 | 100% | 1,200,000 | 100% | |
| Cost of goods sold | 960,000 | 64 % | 780,000 | 65% | |
| Gross profit | 540,000 | 36% | 420,000 | 35% | |
| Selling expenses | 285,000 | 19% | 216,000 | 18% | |
| Administrative expenses | 90,000 | 6% | 96,000 | 8% | |
| Total operating expenses | 375,000 | 25% | 312,000 | 26% | |
| Income from operations | 165,000 | 11% | 108,000 | 9% | |
| Other income | 36,000 | 2.4% | 36,000 | 3% | |
| Income before income tax | 201,000 | 13.4% | 144,000 | 12% | |
| Income tax expense (benefit) | 42,000 | 2.5% | 28,800 | 2.4% | |
| Net income (loss) | 159,000 | 10.6% | 115,200 | 9.6% |
Vertical analysis states financial statements in a comparable common-size format (percentage form). One of the advantages of common-size analysis is that it can be used for inter-company comparison of enterprises with different sizes because all items are expressed as a percentage of some common number.
