Cochran Corporation, Inc.has the following income statement (in millions): Using vertical analysis, what percentage is assigned to Cost of goods sold?

Question

Cochran Corporation, Inc.has the following income statement (in millions):  Using vertical analysis, what percentage is assigned to Cost of goods sold?

Quizplus · Accepted Answer

Vertical analysis involves dividing each item on the income statement by total revenue. Cost of goods sold is the largest item on this income statement, which means it will have the highest percentage when using vertical analysis. To find the percentage assigned to Cost of goods sold, we divide $2,525 million (COGS) by $4,025 million (total revenue) and multiply by 100 to get 62.71%, which we can round up to 63%. Therefore, the best choice is B, with Cost of goods sold assigned 63% of the total revenue.