The Following Income Statements Are Provided for Li Company's Last

question 138

Multiple Choice

The following income statements are provided for Li Company's last two years of operation: $\begin{array}{lrr}&\text { Year 1}&\text { Year 2}\\\text { Number of units produced and sold } & 3,500 & 3,000 \\\text { Sales revenue } & \$ 101,500& \$ 87,000 \\\text { Cost of goods sold } & 68,000& 60,000 \\\text { Gross margin } & 33,500& 27,000 \\\text { General, selling, and administrative expenses } & 13,000& 12,00 0 \\\text { Net income } & \$ 20,500 & \$ 15,000\end{array}$ Assuming that cost behavior did not change over the two-year period,what is the amount of the company's variable cost of goods sold per unit?

• A) $12.00 per unit
• B) $16.00 per unit
• C) $22.00 per unit
• D) None of these

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Definitions:

Horizontal Analysis

An analytical method in financial statements analysis where amounts in a series of financial statements are compared line by line to detect changes and trends over different periods.

Vertical Analyses

An accounting method where each entry in a financial statement is listed as a percentage of another item to analyze relative size and composition.

Horizontal Analyses

Analysis technique for financial statements that evaluates changes in financial information over multiple reporting periods using percentage or absolute comparisons to find growth or decline trends.

Financial Statements

Reports that summarize the financial performance and position of a business, including the balance sheet, income statement, and cash flow statement.