Refer to the data in Problem 13–9. The president of Empire Labs Inc. is deeply concerned. Sales increased by $5 million from last year to this year, yet the company’s net income increased by only a small amount. Also, the company’s operating expenses went up this year, even though a major effort was launched during the year to cut costs.

Required:

1. For both last year and this year, prepare the income statement and the balance sheet in common-size format. Round computations to one decimal place.

2. From your work in part (1), explain to the president why the increase in profits was so small this year. Were any benefits realized from the company’s cost-cutting efforts? Explain.

In Problem 13–9

Transcribed Image Text:

EMPIRE LABS INC. Comparative Income Statement For the Years Ended December 31 This Year Last Year Sales $20,000,000 $15,000,000 Less: Cost of goods sold 13.000.000 9.000,000 Gross margin 7,000,000 6,000,000 Less: Operating expenses 5.260,000 4.560.000 Net operating income 1,740,000 1,440,000 Less: Interest expense 240,000 240.000