Question

Operating data for Lily Corporation are presented as follows.

Net sales
Cost of goods sold
Selling expenses
Administrative expenses
Income tax expense
Net income
2022
$748,000
468,996
120,428
64,328
29,172
65,076
2021
$605,000
392,040
70,785
50,215
20,570
71,390
4
Prepare a schedule showing a vertical analysis for 2022 and 2021. (Round answers to 1 decimal place, e.g. 48.5%.)

Answer 1

To prepare a vertical analysis, we need to calculate each item as a percentage of net sales for both 2022 and 2021. Here's the vertical analysis schedule:

Vertical Analysis for 2022:

Net sales: $748,000
Cost of goods sold: $468,996
Selling expenses: $120,428
Administrative expenses: $64,328
Income tax expense: $29,172
Net income: $65,076

Vertical Analysis for 2021:

Net sales: $605,000
Cost of goods sold: $392,040
Selling expenses: $70,785
Administrative expenses: $50,215
Income tax expense: $20,570
Net income: $71,390

Now, let's calculate the percentages:

Vertical Analysis for 2022:

Net sales: 100.0%
Cost of goods sold: (468,996 / 748,000) * 100 = 62.7%
Selling expenses: (120,428 / 748,000) * 100 = 16.1%
Administrative expenses: (64,328 / 748,000) * 100 = 8.6%
Income tax expense: (29,172 / 748,000) * 100 = 3.9%
Net income: (65,076 / 748,000) * 100 = 8.7%

Vertical Analysis for 2021:

Net sales: 100.0%
Cost of goods sold: (392,040 / 605,000) * 100 = 64.7%
Selling expenses: (70,785 / 605,000) * 100 = 11.7%
Administrative expenses: (50,215 / 605,000) * 100 = 8.3%
Income tax expense: (20,570 / 605,000) * 100 = 3.4%
Net income: (71,390 / 605,000) * 100 = 11.8%

I have rounded the percentages to one decimal place as requested.