CommonSized Income Statement Revenue and expense data for th

Common-Sized Income Statement

Revenue and expense data for the current calendar year for Tannenhill Company and for the electronics industry are as follows. Tannenhill’s data are expressed in dollars. The electronics industry averages are expressed in percentages.

a. Prepare a common-sized income statement comparing the results of operations for Tannenhill Company with the industry average. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

b. The company is managing the cost of manufacturing product than the industry, and has slightly selling and administrative expenses relative to the industry. The combined impact causes net income as a percent of sales to be than the industry average.

	Tannenhill Company		Electronics Industry Average
Sales	$2,240,000			100	%
Cost of goods sold	1,478,400			71
Gross profit	$761,600			29	%
Selling expenses	$448,000			16	%
Administrative expenses	179,200			7
Total operating expenses	$627,200			23	%
Operating income	$134,400			6	%
Other revenue	44,800			2
	$179,200			8	%
Other expense	22,400			1
Income before income tax	$156,800			7	%
Income tax expense	67,200			4
Net income	$89,600			3	%

Solution

Tannenhill Company Common-Sized Income Statement For the Year Ended December 31 Tannenhill Tannenhill Electronics Company Company Industry Amount Percent Average Sales $2,240,000 100% 100.00% Cost of goods sold 1,478,400 66% 71% Gross profit $761,600 34% 29% Selling expenses $448,000 20% 16% Administrative expenses 179,200 8% 7% Total operating expenses $627,200 28% 23% Income from operations $134,400 6% 6% Other revenue 44,800 2% 2% $179,200 8% 8% Other expense 22,400 1% 1% Income before income tax $156,800 7% 7% Income tax expense 67,200 3% 4% Net income $89,600 4% 3% Common sized % is as percentage of sales like 1478400/2240000 = 66% The cost of goods sold is 5% lower than the industry average, but the selling expenses and administrative expenses are 4% and 1% higher than the industry average. The company is managing the cost of manufacturing product better than the industry, and has slightly higher selling and administrative expenses relative to the industry. The combined impact causes net income as a percent of sales to be 1% better than the industry average.