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Q1) Campers, Inc. produces camping equipment. Shown below for current year is income statement for company and common size summary for industry in which company operates. (Notice that percentages in the right hand column are not for Campers, Inc., but are average percentages for industry.)

 
Campers, Inc.,
Industry avg.
Sales (Net)
$20,000,000
100%
cost of goods Sold
$9,800,000
57%
Gross profit on sale
$10,200,000
43%
operating expenses
 
 
Selling
$4,200,000
16%
General and administrative
$3,400,000
20%
Total operating expenses
$7,600,000
36%
Operating Income
$2,600,000
7%
Income tax expenses
$1,200,000
3%
Net income
$1,400,000
4%
Return on Assets
 
14%

problems:

A. Create two column common size income statement. First column must illustrate for Campers, Inc., all items expressed as percentage of net sales. Second column must show equivalent industry average for data given in the problem. Purpose of this common size statement is to compare operating results of Campers, Inc., with average for industry.

B. Comment specifically on difference between Camper's, Inc., and industry average with respect to gross profit on sales, selling expenses, general and administrative expenses,net income, operating income, and return on assets. Reccomend possible reasons for more significant disparities.

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  • Category:- Accounting Basics
  • Reference No.:- M920660

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