Question

Knowledge Check 01 Provided below is summary income statement data for Freedom Corporation. Amount Sales $ 800,000 Cost of goods sold 350,000 Operating expenses 180,000 Other expense 30,000 Income tax expense 20,000 Net income $ 220,000 Using vertical analysis, what percentage is applicable to Cost of Goods Sold? Multiple Choice 35.0% 43.8% 56.2% 62.9%

Answer 1

Answer:

43.8%(approx)

Explanation:

Given that,

Sales = $800,000

Cost of goods sold = 350,000

Operating expenses = 180,000

Other expense = 30,000

Income tax expense = 20,000

Net income = $ 220,000

Here, we are using vertical analysis,

Percentage is applicable to Cost of Goods Sold:

= (Cost of goods sold ÷ Sales) × 100

= ($350,000 ÷ $800,000) × 100

= 0.4375 × 100

= 43.75% or 43.8%(approx)