Practice prompt · Q:multi-period-statement-analysis-and-operating-efficiency/common-size-build-001

Build a common-size income statement

Tests whether the learner scales each line against the right base and reads the result across two years.

Updated Sep 10, 2026 Review due Nov 18, 2026

Practice

Check your answer

Choose a response, then check the answer and explanation.

Year 1: net sales 800,000, cost of goods sold 520,000. Year 2: net sales 1,000,000, cost of goods sold 670,000.

A common-size statement answers a question about composition. Growth in an absolute figure says nothing on its own; the share of each sales dollar is what carries across years and across companies of different sizes.

Choose the best answer. a Cost of goods sold is 65.0 percent of net sales in year 1 and 67.0 percent in year 2, so gross margin narrowed. b Cost of goods sold rose 28.8 percent, so the company is less efficient. c Cost of goods sold is 65.0 percent in year 1 and 83.8 percent in year 2, because year 2 is scaled against year 1 sales. d Cost of goods sold is 65.0 percent in both years, because both figures grew.

Your answer stays on this page. It is not sent or saved.

Show explanationHide explanation

Answer: a

Choice a. Dividing each year's cost by its own net sales gives 65.0 and 67.0 percent.