Bull Run
Company
Electronics
Industry
Average
Sales $2,100,000 105.0%
Sales returns and allowances 100,000 5.0
Net sales $2,000,000 100.0%
Cost of goods sold 1,040,000 60.0
Gross profit $ 960,000 40.0%
Selling expenses $ 560,000 22.0%
Administrative expenses 300,000 12.0
Total operating expenses $ 860,000 34.0%
Operating income $ 100,000 6.0%
Other income 60,000 3.0
$ 160,000 9.0%
Other expense 40,000 2.0
Income before income tax $ 120,000 7.0%
Income tax expense 60,000 6.0
Net income $ 60,000 1.0%
a. Prepare a common-sized income statement comparing the results of operations for Bull Run Company with the industry average. Round to one decimal place.
b. As far as the data permit, comment on significant relationships revealed by the comparisons.
Answer:
a.
BULL RUN COMPANY
Common-Sized Income Statement
For the Year Ended December 31, 20—
Bull Run
Company
Electronics
Industry
Average
Amount Percent
Sales $2,100,000 105% 105%
Sales returns and allowances 100,000 5% 5%
Net sales $2,000,000 100% 100%
Cost of goods sold 1,040,000 52% 60%
Gross profit $ 960,000 48% 40%
Selling expenses 560,000 28% 22%
Administrative expenses 300,000 15% 12%
Total operating expenses $ 860,000 43% 34%
Operating income 100,000 5% 6%
Other income 60,000 3% 3%
$ 160,000 8% 9%
Other expense 40,000 2% 2%
Income before income tax $ 120,000 6% 7%
Income tax expense 60,000 3% 6%
Net income $ 60,000 3% 1%
b. The cost of goods sold is 8% lower than the industry average, but the selling
expenses and administrative expenses are 6% and 3% higher than the industry
average. The combined impact causes net income as a percent of sales to be 2%
better than the industry average. Apparently, the company is managing the cost of
manufacturing product better than the industry, but has slightly higher selling and
administrative expenses relative to the industry. The cause of the higher selling and
administrative expenses as a percent of sales, relative to the industry, can be
investigated further.