Question

Revenue and expense data for the current calendar year for Tannenhill Company and for the electronics industry are as follows. The Tannenhill Company data are expressed in dollars. The electronics industry averages are expressed in percentages.
1 Tannenhill Company Electronics Industry Average
2 Sales $4,000,000.00 100.0%
3 Cost of goods sold 2,120,000.00 60.0
4 Gross profit $1,880,000.00 40.0%
5 Selling expenses $1,080,000.00 24.0%
6 Administrative expenses 640,000.00 14.0
7 Total operating expenses $1,720,000.00 38.0%
8 Income from operations $160,000.00 2.0%
9 Other income 120,000.00 3.0
10 $280,000.00 5.0%
11 Other expense 80,000.00 2.0
12 Income before income tax $200,000.00 3.0%
13 Income tax expense 80,000.00 2.0
14 Net income $120,000.00 1.0%
Required:
A. Prepare a common-sized income statement comparing the results of operations for Tannenhill Company with the industry average. Enter all amounts as positive numbers.
B. As far as the data permit, comment on significant relationships revealed by the comparisons.
As far as the data permit, comment on significant relationships revealed by the comparisons.
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.

Answer 1

(B)Tannenhill recorded a higher net income % measured by market result even though its selling and administrative costs were above the average for the industry. This was due to the company having more success in cost of goods optimization.

There was no impact on overall performance because the other expenses and revenues were comparable to the market average.

      Tannenhill                           %           Industry

Sales 4,000,000                       100            100

Cost of goods 2,120,000          53               60

Gross profit of 1,880,000           47                 40

Selling Costs 1,080,000             27                  24

Admin Costs 640,000                16                    14

Operating Expenses 1,720,000   43                   38

Operating income 160,000           4                       2

Other income 120,000                   3                      3

Total income: 280,000                   7                       5

Other Expenses 80,000                2                         2

Income before taxes 200,000      5                          3

Taxes on income 80,000              2                          2

Net income 120,000                      3                           1

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