According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 3.8 percent between January and December 2016. Required:
1. Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages for the income statement of Computer Tycoon Inc. for the year ended December 31, 2016.
2-a. Conduct a vertical analysis by expressing each line as a percentage of total revenues.
2-b. Excluding income tax, interest, and operating expenses, did Computer Tycoon earn more profit per dollar of sales in 2016 compared to 2015?
According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 3.8 percent between January and December 2016. Let’s see whether these changes are reflected in the income statement of Computer Tycoon Inc. for the year ended December 31, 2016.
2016 2015
Sales Revenue $ 100,000 $ 120,000
Cost of Goods Sold 60,000 71,500
Gross Profit 40,000 48,500
Selling, General, and Administrative Expenses 36,000 37,000
Interest Expense 500 475
Income before Income Tax Expense 3,500 11,025
Income Tax Expense 1,000 5,000
Net Income $ 2,500 $ 6,025