Question

The following data are available for selected income statement accounts for two years for Bronze Company:

Year 1 Year 2
Sales $750,000 $845,000
Cost of goods sold $457,000 $524,000
Income before taxes $88,500 $99,000
Net income $62,000 $70,000

If a percentage analysis approach for horizontal analysis is calculated, what is the percentage increase in cost of goods sold for Year 2?

Answer 1

The cost of goods sold for the Bronze Company increased by 14.66% in Year 2 compared to Year 1. This percentage represents the increase determined via a horizontal analysis approach.

Step-by-step explanation:

To calculate the percentage increase in the cost of goods sold for Year 2 in a horizontal analysis, you subtract the Year 1 cost from the Year 2 cost and then divide by the Year 1 cost. Finally, you multiply the result by 100 to get the percentage.

Here's the calculation:

Percentage Increase = [(Year 2 Cost of Goods Sold - Year 1 Cost of Goods Sold) / Year 1 Cost of Goods Sold] x 100

Percentage Increase = [($524,000 - $457,000) / $457,000] x 100

Percentage Increase = ($67,000 / $457,000) x 100

Percentage Increase = 0.1466 x 100

Percentage Increase = 14.66%

So, the cost of goods sold for Bronze Company increased by 14.66% in Year 2 compared to Year 1.