Reference no: EM132999065

Outdoor World, Inc., manufactures camping equipment. Shown for the current year are the income statement for the company and a common size summary for the industry in which the company operates.

                                              Outdoor World, Inc.                    Industry Average
Sales (net)                                    $20,000,000                             100%
Cost of goods sold                             9,800,000                               58
Gross profit on sales                        $10,200,000                              42%

Operating expenses:
Selling                                            $4,200,000                             16%
General and administrative                   3,400,000                             20
Total operating expenses                   $7,600,000                             36%
Operating income                             $2,600,000                               6%
Income tax expense                           1,200,000                               3
Net income                                     $1,400,000                               3%
Return on assets                                       23%                            14%

Required:

Problem a. Prepare a common size income statement. The first column should show for Outdoor World, Inc., all items expressed as a percentage of net sales. The second column has been completed and shows the equivalent industry average for the data given in the problem. The purpose of this common size statement is to compare the operating results of Outdoor World, Inc., with the average for the industry.