The following is a common-sized Income Statement for Sigma and Chi Companies.

Which company has the best cost of goods sold percentage?
A)Not enough information is given to assess the question.
B)Sigma Company
C)Chi Company
D)Too close to make a solid determination.

Question

The following is a common-sized Income Statement for Sigma and Chi Companies.

Which company has the best cost of goods sold percentage?
A)Not enough information is given to assess the question. 
B)Sigma Company 
C)Chi Company 
D)Too close to make a solid determination.

Quizplus · Accepted Answer

To calculate the cost of goods sold percentage, we divide the cost of goods sold by the total revenue and multiply by 100. 
For Sigma Company: 
Cost of Goods Sold = $1,800,000 
Total Revenue = $24,000,000 
Cost of Goods Sold Percentage = (1,800,000 / 24,000,000) x 100 = 7.5% 
For Chi Company: 
Cost of Goods Sold = $1,500,000 
Total Revenue = $20,000,000 
Cost of Goods Sold Percentage = (1,500,000 / 20,000,000) x 100 = 7.5% 
Both companies have the same cost of goods sold percentage, but the question asks which company has the best percentage. As both percentages are the same, we can select either option. However, option C (Chi Company) is a better choice as Chi Company has a higher net income, which suggests that it may have better cost control or pricing strategies.

The Following Is a Common-Sized Income Statement for Sigma and Chi