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For 2008, Dusan Water Supplies Inc. initiated a sales promotion campaign that included the expenditure of an additional $21,000 for advertising. At the end of the year, Ivana Novatna, the president, is presented with the following condensed comparative income statement:
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Dusan Water Supplies Inc. |
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Comparative Income Statement |
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For the Years Ended December 31, 2008 and 2007 |
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2008 |
2007 |
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Sales |
$255,000 |
$214,000 |
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Sales returns and allowances |
5,000 |
4,000 |
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Net sales |
$250,000 |
$210,000 |
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Cost of goods sold |
142,500 |
121,800 |
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Gross profit |
$107,500 |
$ 88,200 |
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Selling expenses |
$100,000 |
$ 50,400 |
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Administrative expenses |
20,000 |
16,800 |
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Total operating expenses |
$120,000 |
$ 67,200 |
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Income from operations |
$ (12,500) |
$ 21,000 |
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Other income |
6,250 |
4,200 |
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Income before income tax |
$ (6,250) |
$ 25,200 |
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Income tax expense (benefit) |
(2,500) |
8,400 |
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Net income (loss) |
$ (3,750) |
$ 16,800 |
Instructions
1. 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. Round to one decimal place.
2. To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1)