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x1 x2
sales 20,000 26,000
cogs 15,400 21,050
gp 4600 4950interpretation:
gp has fallen to 19% from 23%.
if cogs was to rise in proportion to x1 figures, cogs in x2 shd have been 20,020 which wd have given an extra 1000 in gp.this means there was some inefficiency in the production/purchasing of goods.
its also possible that inventory valuations have been higher than what they shd have been.
————————————————does this make sense?
Yes, it is possible. However, in these questions we always assume that the figures are correct. So here, we assume that the inventory has been valued correctly.
Therefore, if inventory was costing more it would be because goods were costing more to buy, which could mean that there was inefficiency in the production/purchasing.
(It could, of course, also be because the prices charged by our suppliers had increased but we were unable to increase our selling prices)
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