Common-size and trend percents for Roxi Company's sales, cost of goods sold, and expenses follow.

 Common-size and trend percents for Roxi Company's sales, cost of goods sold, and expenses follow.
 

     Common-Size Percents    Trend Percents
Current Year    1 Year Ago    2 Years Ago    Current Year    1 Year Ago    2 Years Ago
Sales    100.0%    100.0%    100.0%    105.4%    104.2%    100.0%
Cost of goods sold    63.4    61.9    59.1    113.1    109.1    100.0
Operating expenses    15.3    14.8    15.1    106.8    102.1    100.0
 
Determine the net income for the following years. Did the net income increase, decrease, or remain unchanged in this three-year period?

Explanation
Supporting calculations: When the sum of each year's common-size cost of goods sold and operating expenses is subtracted from the common-size sales percent, the net income percent is as follows:
 
2 Years Ago net income percent: 100.0 − 59.1 − 15.1 = 25.8% of sales
1 Year Ago net income percent: 100.0 − 61.9 − 14.8 = 23.3% of sales
Current Year net income percent: 100.0 − 63.4 − 15.3 = 21.3% of sales
 
Next, notice that if 2 Years Ago sales are assumed to be $100,000, then sales for 1 Year Ago are $104,200 and the sales for the Current Year are $105,400. If the net income percents for the three years are applied to these amounts, the net incomes are:
 
2 Years Ago net income: $100,000 × 25.8% = $25,800
1 Year Ago net income: $104,200 × 23.3% = $24,278
Current Year net income: $105,400 × 21.3% = $22,450
 
This shows that net income decreased over the three-year period.

 

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