Outdoor World, Inc., manufactures camping equipment. Shown below for the current year are the income statement for the company and a common size summary for the industry in which the company operates. (The percentages in the right-hand column are not for Outdoor World, Inc., but are average percentages for the industry.)
Comparing Operating Results with Average Performance in the Industry:
a. Prepare a two-column 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 should show 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.
b. Comment specifically on differences between Outdoor World, Inc., and the industry average with respect to gross profit on sales, selling expenses, general and administrative expenses, operating income, net income, and return on assets. Suggest possible reasons for the more important disparities?