If vertical analysis,using net sales as the base,shows a 67% figure for cost of goods sold in the prior year,and a 70% figure for the current year,this would always mean that:
A) cost of goods sold as a percentage of net sales has increased
B) the dollar amount of cost of goods sold has increased
C) gross margin has increased
D) net income has increased

Question

Quizplus · Accepted Answer

Vertical analysis compares the percentage of each item on the income statement to a common base, which is usually net sales. Therefore, the increase from 67% to 70% in cost of goods sold as a percentage of net sales indicates that the cost of goods sold has increased in relation to net sales. This suggests that choice A is correct. Furthermore, we cannot determine if the dollar amount of cost of goods sold has increased, if the gross margin has increased, or if the net income has increased from this information alone.

If Vertical Analysis,using Net Sales as the Base,shows a 67