For 2012, Selene Company initiated a sales promotion campaign that included the expenditure of an additional $25,000 for advertising. At the end of the year, Scott Brown, the president, is presented with the following condensed comparative income statement:
Selene Company
Comparative Income Statement
For the Years Ended December 31, 2012 and 2011
2012 2011
Sales $999,600 $867,000
Sales returns and allowances 19,600 17,000
Net sales $980,000 $850,000
Cost of goods sold 460,600 433,500
Gross profit $519,400 $416,500
Selling expenses $225,400 $178,500
Administrative expenses 107,800 102,000
Total operating expenses $333,200 $280,500
Income from operations $186,200 $136,000
Other income 49,000 42,500
Income before income tax $235,200 $178,500
Income tax expense 98,000 85,000
Net income $137,200 $ 93,500
Instructions
1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to net sales for each of the years. Round to one decimal place.
2. To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1).