Questions: Prepare a vertical analysis of the 2022 income statement data for Sheffield Company and Susan Company.

Transcript text: Prepare a vertical analysis of the 2022 income statement data for Sheffield Company and Susan Company.

Solution

Solution Steps

Step 1: Vertical Analysis for Sheffield Company

To perform the vertical analysis for Sheffield Company, we express each line item as a percentage of net sales (\$1,878,000). The calculations yield the following percentages:

Cost of goods sold: $ \frac{1,100,508}{1,878,000} \times 100 \approx 58.60\% $
Gross profit: $ \frac{777,492}{1,878,000} \times 100 \approx 41.40\% $
Operating expenses: $ \frac{246,042}{1,878,000} \times 100 \approx 13.10\% $
Income from operations: $ \frac{531,450}{1,878,000} \times 100 \approx 28.30\% $
Interest expense: $ \frac{56,492}{1,878,000} \times 100 \approx 3.01\% $
Income before taxes: $ \frac{474,958}{1,878,000} \times 100 \approx 25.29\% $
Income taxes: $ \frac{322,000}{1,878,000} \times 100 \approx 17.15\% $

Step 2: Vertical Analysis for Susan Company

For Susan Company, we perform a similar analysis using net sales (\$559,000):

Cost of goods sold: $ \frac{296,497}{559,000} \times 100 \approx 53.04\% $
Gross profit: $ \frac{262,503}{559,000} \times 100 \approx 46.96\% $
Operating expenses: $ \frac{79,937}{559,000} \times 100 \approx 14.30\% $
Income from operations: $ \frac{182,566}{559,000} \times 100 \approx 32.66\% $
Interest expense: $ \frac{6,147}{559,000} \times 100 \approx 1.10\% $
Income before taxes: $ \frac{176,419}{559,000} \times 100 \approx 31.56\% $
Income taxes: $ \frac{83,200}{559,000} \times 100 \approx 14.88\% $

Final Answer

The vertical analysis results are summarized as follows:

Sheffield Company (2022):

Net sales: $ 100.00\% $
Cost of goods sold: $ 58.60\% $
Gross profit: $ 41.40\% $
Operating expenses: $ 13.10\% $
Income from operations: $ 28.30\% $
Interest expense: $ 3.01\% $
Income before taxes: $ 25.29\% $
Income taxes: $ 17.15\% $

Susan Company (2022):

Net sales: $ 100.00\% $
Cost of goods sold: $ 53.04\% $
Gross profit: $ 46.96\% $
Operating expenses: $ 14.30\% $
Income from operations: $ 32.66\% $
Interest expense: $ 1.10\% $
Income before taxes: $ 31.56\% $
Income taxes: $ 14.88\% $

Thus, the final answer is:

\[ \boxed{ \text{Sheffield Company: } \{100.00\%, 58.60\%, 41.40\%, 13.10\%, 28.30\%, 3.01\%, 25.29\%, 17.15\%\} \\ \text{Susan Company: } \{100.00\%, 53.04\%, 46.96\%, 14.30\%, 32.66\%, 1.10\%, 31.56\%, 14.88\%\} } \]

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