A comparative income statement is given below for McKenzie Sales, Ltd., of Toronto:
McKenzie Sales, Ltd. Comparative Income Statement
This Year Last Year
Sales $8,000,000 $6,000,000
Cost of goods sold 4,984,000 3,516,000
Gross margin 3,016,000 2,484,000
Selling and administrative expenses:
Selling expenses 1,480,000 1,092,000
Administrative expenses 712,000 618,000
Total expenses 2,192,000 1,710,000
Net operating income 824,000 774,000
Interest expense 96,000 84,000
Net income before taxes $728,000 $690,000
Members of the company's board of directors are surprised to see that net income increased by only $38,000 when sales increased by $2,000,000.
Required:
a. Express each year’s income statement in common-size percentages. Carry computations to one decimal place.
b. Comment briefly on the changes between the two years.
