Final answer:
A vertical analysis of Becker Corporation's income statements shows favorable trends with wages taking a smaller percentage of revenue in Year 2 compared to Year 1, while an unfavorable trend is observed in increasing utilities expenses. The net income ratio has improved remarkably, indicating a favorable profitability trend.
Step-by-step explanation:
The student is asking how to identify favorable and unfavorable trends in the provided income statements of Becker Corporation by performing a vertical analysis. Vertical analysis compares each line item to a base amount within the same financial period, which enables an assessment of trends within financial statements. In this case, the base amount is the total revenue for each year.
Performing the vertical analysis, you calculate each expense as a percentage of total revenues. For example, wages expense in Year 1 is 30.61% of revenues ($79,000/$212,500), while in Year 2 it is 20.05% ($79,000/$394,000). This indicates a favorable trend for wage expense as it takes up a smaller percentage of revenue in Year 2. However, utility expenses increased from 6.68% in Year 1 to 5.33% in Year 2, which represents an unfavorable trend. Lastly, net income as a percentage of revenue improved significantly from 50.59% in Year 1 to 67.89% in Year 2, indicating a highly favorable profitability trend.