Question

ESTION #4 Calculate trend percentages for the following iten shown by the trends appears to be favourable or unfavourable. base year. Then state whether the situation 2024 2023 2022 2021 2020 SALES $377,600 $362,400 $338,240 314,080 302.000 COST OF GOODS SOLD 172,720 164,560 155,040 142,800 136,000 ACCOUNTS RECEIVABLE 25,400 24,400 23,200 21,600 20,000 answer 2024 2023 2022 2021 2020

Answer 1

	2024	2023	2022	2021	2020
Sales	125%	120%	112%	104%	100%
cost of goods sold	127%	121%	114%	105%	100%
accounts receivable	127%	122%	116%	108%	100%

Analysing the above trend percentages,

The trend of sales is increasing each year on favorable note. But the trend of cost of goods sold is unfavorable as its acceleration of growth is higher than that of sales. It means that the gross profit or margin has been decreasing. It may be possible that increased sales is due to decrease in unit sale price or purchasing policy of inputs are becoming less efficient.

Accounts receivable trend is higher than the sales made.This is also unfavorable. This means the accounts receivable has decreased due to poor recovery policy or the company has increased credit period for goods sold. This results in liquidity issue if sales are not realized in time. Comparing to cost of goods sold, sales is decreasing, cost of goods sold is increasing, the realization ability from accounts receivable is also declining. This will lead to acute cash shortage in short term. Hence, the company shall at least put appropriate credit policy in place.