Consider the following income statement data for Barolo Inc.:
$$\begin{array}{l}
\begin{array} { l l r }
&2020&2019\
\text {Sales revenue }&\$ 97,300&\$86,200\
\text {Less: Cost of goods sold }&45,600&53,400\
\text {Gross profit }&51,700&32,800\
\text {Less: Selling and administration costs }&22,500&18,300\
\text {Net Income }&\$29,200&\$14,500\
\end{array}
\end{array}$$
-Based on common-size analysis,which of the following statements is correct?
A)The increase in sales revenue in 2020 was caused by higher selling and administrative expenses.
B)The company's cost to sales ratio improved in 2020.
C)The increase in gross profit in 2020 was due to increased sales.
D)Net income as a percent of sales declined in 2020.

Question

Consider the following income statement data for Barolo Inc.:
$$\begin{array}{l}
\begin{array} { l l r } 
&2020&2019\
\text {Sales revenue }&\$ 97,300&\$86,200\
\text {Less: Cost of goods sold }&45,600&53,400\
\text {Gross profit }&51,700&32,800\
\text {Less: Selling and administration costs }&22,500&18,300\
\text {Net Income }&\$29,200&\$14,500\
\end{array}
\end{array}$$
-Based on common-size analysis,which of the following statements is correct?
A)The increase in sales revenue in 2020 was caused by higher selling and administrative expenses.
B)The company's cost to sales ratio improved in 2020.
C)The increase in gross profit in 2020 was due to increased sales.
D)Net income as a percent of sales declined in 2020.

Quizplus · Accepted Answer

The cost to sales ratio, which is calculated as Cost of Goods Sold divided by Sales Revenue, improved in 2020 compared to 2019. This is evident from the decrease in Cost of Goods Sold from \$53,400 in 2019 to \$45,600 in 2020, while Sales Revenue increased from \$86,200 in 2019 to \$97,300 in 2020. This indicates a more efficient cost management relative to sales.

Consider the Following Income Statement Data for Barolo Inc -Based on Common-Size Analysis,which of the Following Statements Is Correct