Danner Corporation reported net sales of $650,000, $720,000, and $780,000 in the years 2016, 2017, and 2018, respectively. If 2016 is the base year, what percentage do 2018 sales represent of the base?
a. 108%
b. 120%
c. 83%
d. 20%
The correct answer and explanation is :
To determine what percentage the 2018 sales represent of the base year (2016), we use the following formula for percentage change:
[
\text{Percentage of base year} = \left( \frac{\text{Sales in comparison year}}{\text{Sales in base year}} \right) \times 100
]
Given Data:
- 2016 Sales (Base Year): $650,000
- 2018 Sales: $780,000
Calculation:
[
\left( \frac{780,000}{650,000} \right) \times 100
]
[
= 1.2 \times 100
]
[
= 120\%
]
Answer:
The correct choice is (b) 120%.
Explanation:
In this type of analysis, 2016 is the base year, which means we consider its sales (650,000) as 100%. To determine how much 2018 sales represent relative to this base, we divide 2018 sales by 2016 sales and then multiply by 100.
A percentage greater than 100% indicates growth over the base year. Since the result is 120%, this means that the sales in 2018 are 20% higher than in 2016. This percentage is useful for financial analysis, as it helps businesses track growth trends over time. A steady increase like this suggests a positive trajectory for Danner Corporation.
This type of analysis, known as trend analysis or horizontal analysis, is often used in financial reporting to compare performance over multiple periods. Investors, managers, and stakeholders use such percentages to assess company progress and make informed decisions. If the sales growth continues at this pace, it indicates strong market demand and good financial health.