If a user wanted to analyze the discretionary expenses, which of the following would be the most useful analytical tool?
A)Horizontal analysis
B)Vertical analysis
C)Gross margin
D)Return on sales

Question

Quizplus · Accepted Answer

Vertical analysis is the most useful analytical tool for analyzing discretionary expenses. This tool involves expressing each expense item as a percentage of total revenues. By doing so, it highlights the proportion of revenues that discretionary expenses are consuming, which can help management identify areas where cost reductions may be necessary. Horizontal analysis compares financial data over time, gross margin measures a company's profitability after accounting for the cost of goods sold, and return on sales measures a company's net income as a percentage of total revenue. While all of these tools can be useful for financial analysis, they do not specifically focus on discretionary expenses.

If a User Wanted to Analyze the Discretionary Expenses, Which