Hello Members,
Please advise on the following
Gordon has had the following financial results for the last four years.
Year 1 Year 2 Year 3 Year 4
Sales $1,250,000 $1,300,000 $1,359,000 $1,400,000
Cost of goods sold 750,000 785,000 825,000 850,000
Gross profit 500,000 515,000 534,000 550,000
Inflation factor 1.00 1.03 1.07 1.10
Gordon has analyzed these results using vertical common-size analysis to determine trends. The performance of Gordon can
best be characterized by which one of the following statements?
a. The common-size gross profit percentage has decreased as a result of an increasing common-size trend in cost of goods sold.
b. The common-size trend in sales is increasing and is resulting in an increasing trend in the common-size gross profit margin.
c. The common-size trend in cost of goods sold is decreasing which is resulting in an increasing trend in the common-size gross profit margin.
d. The increased trend in the common-size gross profit percentage is the result of both the increasing trend in sales and the decreasing trend in cost of goods sold.