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Which one of the following would cause a company’s gross profit percentage on sales to fall?
A) A reduction in the total value of goods returned to suppliers.
B) An increase in the costs of delivery of goods to customers.
C) A decline in average inventory levels.
D) An increase in theft of inventory by customers and staff
Dear tutor, please explain this question. Which one is correct and why?Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – it has answers and explanations.
The gross profit percentage is the % profit earned on what is actually sold.
A, C and D do not affect the profit that is being made on what they are actually selling.
B does affect the profit % because an increase in the costs of delivering to the customers means that the cost of sales will increase and hence the profit % will fall.
Dear tutor, why choice B is included carriage outward which is selling expense, how it is included cost as it isn’t carriage inward?
Why choice D isn’t correct? I thought theft of inventory change closing inventory (Cost), so profit margin.On reading it again I do agree with you.
The carriage outward is treated as a selling expense and so would not affect the gross profit.
As far as D is concerned, then if the closing inventory in the SPOL is shown as the actual amount (i.e. after the theft) then this will affect the gross profit. However strictly (as I explain in my lectures) it should initially be shown as the amount before the theft (which would not affect the gross profit) and then charges later in the SOPL after the gross profit.
On balance, D is however the best of the answers available.
What answer does your book give?
? couldn’t find the question. ?f i’m not mistaken correct answer was D or C.
Choice C may be true? I confused which one is corect and why? Deat tutor, could you pls give examples about choices D and C for clear understanding? Thanks in advance
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