Question

Assume a company has net income of $24,000, income before taxes of 33,000, income taxes $9,000, gross margin of $105,000, and sales of $350,000. If it is performing vertical analysis, what percentage would be assigned to income taxes?

Answer 1

In vertical analysis, income taxes as a percentage of total sales is calculated by dividing the tax amount by total sales and then multiplying by 100, which in this case is 2.57%.

Step-by-step explanation:

To determine the percentage of income taxes using vertical analysis, you would divide the tax amount by total sales and multiply by 100. In this case:

Income Taxes ($9,000) / Total Sales ($350,000) = 0.0257 or 2.57%

The percentage assigned to income taxes in vertical analysis can be calculated by dividing the income taxes by the sales and then multiplying by 100. In this case, the income tax amount is $9,000 and the sales amount is $350,000.

So, the percentage assigned to income taxes would be:

($9,000 / $350,000) x 100 = 2.57%

Therefore, on a vertical analysis, the percentage assigned to income taxes would be 2.57% of total sales.