3. Use the common-sized income statements, which compare Quiet Pints to the industry average, to identify...

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3. Use the common-sized income statements, which compare Quiet Pints to the industry average, to identify unfavorable trends the company should work toward improving. Quiet Pints Industry Average 100% Sales Cost of goods sold Gross profit Selling expenses 100% 46.5% 53.5% 10.7% Administrative expenses 13.4% Total operating expenses 24.1% Income from operations 29.4% Other income 2.6% 32.0% Other expenses 1.1% Income before income tax 30.9% Income tax expense 10.8% Net income 20.1% 42.6% 57.4% 9.5% 12.8% 22.3% 35.1% 2.7% 37.8% 1.3% 36.5% 12.8% 23.7% Strategy: A common-sized income statement shows the various income and expense items as a percentage of sales. If a company has a higher income line item (or a lower expense line item) as a percentage of its sales than its comparison (industry average, previous year, or competitor), the difference is favorable. For example, lower expenses as a percentage of sales indicate the company is spending less to generate the dollar in sales than its comparison. However, if the company has a lower percentage of an income line item (or a higher percentage of an expense line item) of its sales than its comparison, the difference is unfavorable. For example, higher expenses as a percentage of sales indicates that the company is spending more to generate each dollar of sales than its comparison. 3. Use the common-sized income statements, which compare Quiet Pints to the industry average, to identify unfavorable trends the company should work toward improving. Quiet Pints Industry Average 100% Sales Cost of goods sold Gross profit Selling expenses 100% 46.5% 53.5% 10.7% Administrative expenses 13.4% Total operating expenses 24.1% Income from operations 29.4% Other income 2.6% 32.0% Other expenses 1.1% Income before income tax 30.9% Income tax expense 10.8% Net income 20.1% 42.6% 57.4% 9.5% 12.8% 22.3% 35.1% 2.7% 37.8% 1.3% 36.5% 12.8% 23.7% Strategy: A common-sized income statement shows the various income and expense items as a percentage of sales. If a company has a higher income line item (or a lower expense line item) as a percentage of its sales than its comparison (industry average, previous year, or competitor), the difference is favorable. For example, lower expenses as a percentage of sales indicate the company is spending less to generate the dollar in sales than its comparison. However, if the company has a lower percentage of an income line item (or a higher percentage of an expense line item) of its sales than its comparison, the difference is unfavorable. For example, higher expenses as a percentage of sales indicates that the company is spending more to generate each dollar of sales than its comparison.

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Expert Answer General Guidance The answer provided below has been developed in a clear step by step manner Step 1 A common sized income statement is o... View the full answer