Chapter 13, Problem 1QC

To determine

To identify: Which of the given option is correct regarding the percentage of changes in selling, general and administrative expenses.

Answer to Problem 1QC

b. 5.75%

Explanation of Solution

Horizontal Analysis:

Horizontal analysis is prepared to make comparison between the financial statements to determine the changes in the financial statements for the previous year to the current year. The changes of the company are measured in dollars as well as in percentage. Use the following formula to determine the percentage change:

$\text{Percentage Change}=100\times \frac{\text{Later Period}\text{Amount}-\text{Base}\text{Period Amount}}{\text{Base Period Amount}}$

Calculate the percentage of changes in selling, general and administrative expense

$\begin{array}{c}\begin{array}{l}\text{Percentage Change in selling, general }\\ \text{and administrative expense}\end{array}\}=\frac{\left(\begin{array}{l}\text{Later Period}\text{Amount}-\\ \text{Base}\text{Period Amount}\end{array}\right)}{\text{Base Period Amount}}\times 100\\ =\frac{\left(\$1,840-\$1,740\right)}{\$1,740}\times 100\\ =5.75\%\end{array}$

Option “a, c, and d” are not correct answer as per above explanation, only option “b” is correct answer as per above explanation. Hence, the correct answer is option b.

Conclusion

Therefore, the correct option is (b), 5.75%.