Problem

1. Common-size percentages are often used to compare the statements of companies of unequal size. The condensed income statements of Companies A and B are given below. Enter in the spaces provided the amounts expressed in common-size percentages.

Company A and Company B

Income Statements for Year Ended December 31, 2007

Dollar Amounts Common-Size Percentages

Company A Company B Company A Company B

Sales $450,000 $525,000

Cost of goods sold 261,000 210,000

Gross margin $189,000 $315,000

Selling expenses $81,000 $89,250

Administrative expenses 45,000 52,500

Total operating expenses $126,000 $141,750

Income $63,000 $173,250

2. After expressing the amounts of the income statements in common-size percentages, examine them and name the company that operated more efficiently.