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Manal Elkhoshkhany, Bachelor's Degree
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McDonough Products Industry Average

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Learning Objectives : Preparing common-size statements; analyzing
profitability; making comparisons with the industry
Top managers of McDonough Products, Inc., have asked for your help in comparing the company’s profit performance and financial position with the average for the industry. The accountant has given you the company’s income statement and balance sheet and also the following data for the industry.  The problem is that McDonough is in dollars and the Industry Average is in percentages.  To complete the analysis you will need to convert McDonoughs dollar amounts to percentages.
McDonough Products, Inc.
Income Statement Compared with Industry Average
Year Ended December 31, 2010
      McDonoughIndustry
Average
Net sales............................................................................... $        700,000            100.0%
Cost of goods sold..............................................................           490,000                57.3 
Gross profit..........................................................................           210,000                42.7 
Operating expenses ...........................................................           175,000                29.4 
Operating income................................................................             35,000                13.3 
Other expenses....................................................................               7,000                  2.5 
Net income .......................................................................... $          28,000              10.8%
McDonough Products, Inc.
Balance Sheet Compared with Industry Average
December 31, 2010
McDonoughIndustry
Average
Current assets...................................................................... $        471,200              72.1%
Fixed assets, net .................................................................           114,700                19.0 
Intangible assets, net ..........................................................             21,080                  4.8 
Other assets.........................................................................             13,020                  4.1 
Total .....................................................................................           620,000100.0%
        
Current liabilities .................................................................           240,560                  0.5 
Long-term liabilities ............................................................           135,160                21.0 
Stockholders’ equity............................................................           244,280                31.8 
Total ..................................................................................... $        620,000            100.0%
        
Industry Average Current Ratio 1.53  
        
Industry Average Total Debt to Total Assets0.68  
        
See red triangle for helpful hints.   
        
Requirements
1.Prepare a common-size income statement and balance sheet for McDonough Products. The first column of each statement should present McDonough Products’ common-size statement, and the second column should show the industry averages.
2.For the profitability analysis, compute McDonough Products’ (a) ratio of gross profit to net sales (b) ratio of operating income to net sales, and (c) ratio of net income to net sales. Compare these figures with the industry averages. Is McDonough Products’ profit performance better or worse than the average for the industry?

3.


 


 



For the analysis of financial position, compute McDonough Products’ (a) Current ratio and (b) Debt ratio. Compare these ratios with the industry averages. Is McDonough Products’ financial position better or worse than the average for the industry?


 


 


 


 











































































































































































Requirement #1
McDonough Products, Inc.
Common-Size Income Statement Compared to Industry Average
Year Ended December 31, 2010
McDonough ProductsIndustry Average
Net sales……………………………………………………  
Cost of goods sold………………………………………..  
Gross profit…………………………….…………………..  
Operating expenses……………………………………….  
Operating income………………………………………….  
Other expenses…………………………………………….  
Net income…………………………………………………  
McDonough Products, Inc.
Common-Size Balance Sheet Compared to Industry Average
Year Ended December 31, 2010
McDonough ProductsIndustry Average
Current assets……………………………………………..  
Fixed assets, net…………………………………………..  
Intangible assets, net………………………………………  
Other assets……………………………………………….  
Total assets………………………………………………..  
        
Current liabilities………………………….………………..  
Long-term liabilities………………………………………..  
Stockholders’ equity……………………………………….  
Total liabilities and stockholders’ equity…………………  
Requirement #2
        
        
        
        
Requirement #3
Submitted: 2 years ago.
Category: Single Problem
Expert:  Manal Elkhoshkhany replied 2 years ago.

Hello

 

Please click on the following link for the solution:

 

http://www.box.com/s/7gsknc4dngpzz84083uj

 

 

P.S. If you like my services, please feel free to direct your future posts to me specifically by typing "For BusinessTutor" at the beginning of your post. Should you choose to do this, please try to allow me 48 hours before the deadline. If you need to meet me online for a timed assignment, please advise me of the date and time (EST) you want me to meet you here and I will. Please make sure you take the length (and number) of the questions into consideration when making your offer to avoid delays in providing solutions.

 

Thank you

Manal Elkhoshkhany, Bachelor's Degree
Category: Single Problem
Satisfied Customers: 9513
Experience: Finished my BA degree with a GPA of 4.0.
Manal Elkhoshkhany and other Single Problem Specialists are ready to help you
Customer: replied 2 years ago.
Thats not helpful at all.
Expert:  Manal Elkhoshkhany replied 2 years ago.
I am not sure what you mean, please clarify

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Manal Elkhoshkhany
Manal Elkhoshkhany
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Finished my BA degree with a GPA of 4.0.