If an Analyst Wishes to See How a Company's Operating

question 96

Multiple Choice

If an analyst wishes to see how a company's operating expenses as a percentage of net sales have changed from one year to the next, which of the following types of financial statement analysis would be used?

• A) Vertical analysis
• B) Horizontal analysis
• C) Ratio analysis
• D) Common-size financial statement analysis

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Definitions:

Absorption Costing

A method in accounting that involves integrating all costs related to manufacturing, namely direct materials, direct labor, and all variable and fixed overhead expenses, into the pricing of a product.

Fixed Overhead

Costs that remain constant regardless of the level of production or sales activities, such as rent, salaries, and insurance.

Period Cost

Any cost that cannot be capitalized into prepaid expenses, inventory, or fixed assets. A non-manufacturing cost that is expensed in the period in which it is incurred.

Special Order

A special order refers to a one-time or unusual request from a customer that can require unique production or ordering requirements outside of normal operations.