Homework Assignment 6

a. Prepare a commonsized income statement comparing the results of operations for Smith Elec
tronics Company with the industry average Round to one decimal place.



Smith Electronics
Company
Smith Electronics Company
Common Size
Electronics
Industry Average

Sales $3,140,000.00 102.11% 103.30%
Sales returns and allowances $65,000.00 2.11% 3.00%
Net sales $3,075,000.00 100.00% 100.00%
Cost of Goods Sold $1,800,000.00 58.54% 60.00%
Gross Profit $1,275,000.00 41.46% 40.00%
Selling Expenses $613,000.00 19.93% 23.00%
Administrative Expenses $300,000.00 9.76% 10.00%
Total operating expenses $913,000.00 29.69% 33.00%
Operating income $362,000.00 11.77% 7.00%
Other income $23,000.00 0.75% 2.50%

$385,000.00 12.52% 9.50%
Other expense $50,000.00 1.63% 1.00%
Income before income tax $335,000.00 10.89% 8.50%
Income tax expense $170,000.00 5.53% 5.00%
Net Income $165,000.00 5.37% 3.50%

b. As far as the data permit, comment on significant relationships revealed by the comparis
ons.

By comparing Smith Electronics Companys Common Size Statement with the Electronics Industry
Average, the data revealed that Smith Electronics Company has an above average positive overall
financial performance, based on the income statement. Although Smith has a lower than the
average industry's sales, its still in the favorable side by having an larger percentage of net income
and lower than the average expenses. Furthermore, since the difference of the percentages are
not that far, if Smith would have greater sales in the future, it has strong possibility that it would
just fell in the same percentages with the industry average.