Upton, Inc. Income statement for years ended December 31, 2019 and 2018 2019. 2018 Sales $ 900 $ 800 less cost of goods sold 470. 440 Gross profit $ 430 $ 360 Operating expenses: Wage expense $ 95 $ 90 Rent expense 35 30 Misc expense 20 15 Depreciation expense 25 20 total operating expense $ 175 $ 155 Operating income $ 255 $ 205 less Other expenses: Interest expense 15 10 Income before tax $ 240 $ 195 less Income tax expense 110 85 Net income $ 130 $ 110 If a common size income statement were prepared, what percentage would be attributable to the 2018 wage expense of Upton, Inc.?

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15 October, 16:43

Upton, Inc. Income statement for years ended December 31, 2019 and 2018 2019. 2018 Sales $ 900 $ 800 less cost of goods sold 470. 440 Gross profit $ 430 $ 360 Operating expenses: Wage expense $ 95 $ 90 Rent expense 35 30 Misc expense 20 15 Depreciation expense 25 20 total operating expense $ 175 $ 155 Operating income $ 255 $ 205 less Other expenses: Interest expense 15 10 Income before tax $ 240 $ 195 less Income tax expense 110 85 Net income $ 130 $ 110 If a common size income statement were prepared, what percentage would be attributable to the 2018 wage expense of Upton, Inc.?

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Philip Buckley · Answer 1

Wages Expense = 11.25%

Explanation:

Under a common size income statement, all the accounts are based on a percent of sales. That way, it makes the analisys more easy to evaluate the impact of each financial line on the net income.

For 2018 wages expense

The percentage attributable for wages expense will be:

wages expense 90

sales 800

90/800 = 0,1125‬ = 11.25%

This is repeated for every line on the income statement.