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Sports Emporium has two operating segments: sporting goods and sports apparel. The income statement for each operating segment is presented below.

Required:
a. Complete the "%" columns to be used in a vertical analysis of Sports Emporium's two operating segments. Express each amount as a percentage of sales.


SPORTS EMPORIUM Income Statement For the Year Ended December 31, 2015

Sporting Goods Sports Apparel
Amount % Amount %
Net sales $1,825,000 $980,000
Cost of goods sold 1,050,000 445,000
Gross profit 775,000 535,000
Operating expenses 460,000 350,000
Operating income 315,000 185,000
Other income (expense) 20,500 (15,500)
Income before tax 335,500 169,500
Income tax expense 81,000 71,000
Net income $254,500 $98,500

b. Use vertical analysis to compare the profitability of the two operating segments. Which segment is more profitable?

Respuesta :

Answer:

Find attached vertical analysis carried in a spreadsheet

Sporting goods is more profitable

Explanation:

From the attached, it is obvious that Sporting Goods has net income as % of net sales of 13.9% whereas Sports Apparel has 10.10% net income as  % of net sales.

In other words, Sporting Goods is more profitable both in terms of actual dollar profit and profit percentage.

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