Question

Revenue and expense data for Young Technologies Inc. are as follows:

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

Required:
a. Prepare an income statement in comparative form, stating each item for both years as an amount and as a percent of sales. Round percentage amounts to nearest whole percent.
b. Comment on the significant changes disclosed by the comparative income statement.

Answer 1

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