Gavette Company reported the following information for the current year and prior year: What would a vertical analysis report with respect to the relationship between current year net sales revenue and COGS?
A)COGS was 60.00% of net sales revenue
B)A 8.20% decrease from prior to current year
C)An increase of $19,680 from prior to current year
D)An increase of $146,880 from prior to current year

Question

Gavette Company reported the following information for the current year and prior year:  What would a vertical analysis report with respect to the relationship between current year net sales revenue and COGS?
A)COGS was 60.00% of net sales revenue 
B)A 8.20% decrease from prior to current year 
C)An increase of $19,680 from prior to current year 
D)An increase of $146,880 from prior to current year

Quizplus · Accepted Answer

A vertical analysis report compares different items on a financial statement to a common base amount, usually net sales revenue. Therefore, the answer will provide the percentage relationship between each item and net sales revenue. In this case, COGS was $2,108,000 and net sales revenue was $3,520,000 in the current year, so COGS as a percentage of net sales revenue is:
COGS / Net Sales Revenue = ($2,108,000 / $3,520,000) x 100% = 60.00%
Therefore, the correct answer is A, COGS was 60.00% of net sales revenue in the current year. The other answer choices are incorrect or irrelevant to the question.

Gavette Company Reported the Following Information for the Current Year