Question

Saira, Inc. has the following income statement (in millions): SAIRA, INC. Income Statement For the Year Ended December 31, 2014 Net Sales $300 Cost of Goods Sold 180 Gross Profit 120 Operating Expenses 45 Net Income $75 Using vertical analysis, what percentage is assigned to Cost of Goods Sold? a. 40% b. 60% c. 100% d. None of these answer choices are correct.

Answer 1

Answer:

b. 60%

Explanation:

The computation of percentage is assigned to Cost of Goods Sold is shown below:-

                                      $           %

Sales                                  $300      $100

Cost of Goods Sold          $180         $60  ($180 ÷ $300) × 100

Gross Profit                      $120        $40  ($120 ÷ $300) × 100

Operating Expenses          $45          $15  ($45 ÷ $300) × 100

Net Income                      $75          $25 ($75 ÷ $300) × 100

Percentage assigned to cost of goods sold = Cost of goods sold ÷ Sales × 100

= $180 ÷ $300 × 100

= 60%

Therefore for computing the percentage is assigned to Cost of Goods Sold we simply applied the above formula.