The Following Income Statement Was Prepared by Case Company for Year

question 149

Essay

The following income statement was prepared by Case Company for Year 2: $\begin{array}{|l|r|}\hline \text { Sales } & \$ 100,000 \\\hline \text { Cost of goods sold } & \underline { 56,500} \\\hline \text { Gross margin } & 43,500 \\\hline \text { Selling and administrative expense } & 26,000 \\\hline \text { Interest expense } & \underline { 5,000} \\\hline \text { Total expenses } & \underline { 31,000} \\\hline \text { Income before taxes } & 12,500 \\\hline \text { Income tax expense } & \underline { 4, 000 }\\\hline \text { Net income } &\underline { \$ 8,500}\\\hline \end{array}$ Required:
Perform vertical analysis for Case Company's Year 2 income statement.

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Definitions:

Economic Profit

The difference between revenue generated from output and the opportunity costs of inputs used, considering both explicit and implicit costs.

Accounting Profit

The profit of a company after all expenses have been deducted from revenues, but before deducting income taxes.

AVC (Average Variable Cost)

The total variable cost divided by the quantity of output produced; it varies with production.

MC (Marginal Cost)

Marginal Cost is the change in total cost that arises when the quantity produced is incremented by one unit.