Question

Tab, Inc., Income Statements for Fiscal Years 2003, 2004, and 2005 Amount in millions of dollars) 2005 2004 2003 Revenues Cost of sales $25.000 20,000 $22,000 18,000 $21,000 17.000 $4,000 $4,000 Gross profit Selling general, and administrative apenses $5,000 500 500 800 $3.500 $3.200 Operating income Interest and other nonoperating expense $4.500 200 250 250 $2.950 Earnings before income taxes Income tax $4.300 1.410 $3.250 975 885 Net income $2.890 $2.275 $2.065 Tab, Inc., Balance Sheets as of End of Fiscal Years 2003, 2004, and 2005 Amount in millions of dollars) 2004 2003 2005 Cash, cash equiv., and marketable securities Accounts receivable Inventories $200 1.800 8.000 $150 1.350 7.500 $100 900 7,000 Total current assets Net property, plant, and equipment Intangible assets $10,000 $20,000 1,000 $9.000 19.000 1.000 $8,000 19,000 1,000 Total assets $31.000 $29.000 $28.000 Accounts payable Debt due in one year Long-term debt Shareholders' equity $500 1,000 12.000 17.500 $790 1.000 13.000 14.210 $615 1.000 14.000 12.385 Total liabilities and equity $31.000 $29.000 $28.000 Using vertical common-size analysis of the income statement of Tab for 2005, the cost of sales relative to the benchmark is closest to A. 75%. B. 80%. C. 85%.

Answer 1

Sales for 2005 = $25000 millions

Cost of sales for 2005 = $ 20,000 millions

Benchmark in vertical common size Income Statement will be sales which will be 100%

So, Cost of sales relative to the benchmark = $ 20,000 millions/$ 25000 millions

= 80%

Hence, Option B. 80%