Question

The following items were taken from the financial statements of Kramer Manufacturing, Inc. over a three-year period: Item 2023 2022 2021 Net Sales $226,000 $212,000 $200,000 Cost of Goods Sold 150,000 140,000 125,000 Gross Profit $ 76,000 $ 72,000 $ 75,000 Horizontal Analysis Item 2023 2022 2021 Net Sales 113% 106% 100% Cost of Goods Sold 120% 112% 100% Gross Profit 101% 96% 100% Using horizontal analysis and 2021 as the base year. Explain whether the trends are favorable or unfavorable for each item.

Answer 1

Explanation:

Net sales are favorable because the sales increase each year from the base year.

Cost of goods sold is unfavorable because the cost grows faster than sales.

Gross profit is unfavorable because it should at least grow as fast as sales.