Problem Set

BE 13.8
Vertical analysis (common-size) percentages for Vallejo Company’s sales, cost of goods sold, and expenses are listed below:
VERTICAL ANALYSIS 2012 2011 2010
Sales 100.0% 100.0% 100.0%
Cost of goods sold 60.5 62.9 64.8
Expenses 26.0 26.6 27.5
Net Income 13.5 10.5 7.7

Did Vallejo’s net income as a percent of sales increase, decrease, or remain unchanged over the 3 year period. Provide numerical support for your answer.
Sales – Cost of Goods Sold – Expenses = Net Income
100 – 64.8 – 27.5 = 7.7 for 2010
100 – 62.9 – 26.6 = 10.5 for 2011
100 – 60.5 – 26.0 = 13.5 for 2012
During the 3 year period of 2010-2012, the net income increased as a percent of sales for the Vallejo Company due to the decrease as a percent of sales in both the cost of goods sold and expenses every year.

BE 13.9
Horizontal analysis (trend-analysis) percentages for Spartan Company’s sales, cost of goods sold, and expenses are listed below:
VERTICAL ANALYSIS 2012 2011 2010
Sales 96.2% 104.8% 100.0%
Cost of goods sold 101.0 98.0 100
Expenses 105.6 95.4 100
Net Income (110.4) (88.6) 0

Explain whether Spartan’s net income as a percent of sales increase, decrease, or remain unchanged over the 3 year period.
Sales – Cost of Goods Sold – Expenses = Net Income
100 – 100 – 100 = 0.0 for 2010
104.8 – 98.0– 95.4 = -88.6 for 2011
96.2 – 101.0 – 105.6 = -110.4 for 2012
In 2010, the net income for the Spartan Company is 0. In 2011, the company’s net income decreased as a percent of sales in which sales increased but both the cost of goods sold and expenses slightly decreased. Conversely in 2012 Spartan’s net sales further decreased because the sales decreased but the cost of goods sold and the expenses increased.
BE 13.9
Horizontal analysis (trend-analysis) percentages for Spartan Company’s sales, cost of goods sold, and expenses are listed below:
VERTICAL ANALYSIS 2012 2011 2010
Sales 96.2% 104.8% 100.0%
Cost of goods sold 101.0 98.0 100
Expenses 105.6 95.4 100
Net