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which of the following wd cause the gp margin to fall
1. closing inventory is lower than opening inventory
2. some items in the inventory were valued at less than cost.the text says that 2 is the correct answer.
i chose 1 because:
random numbers:
cogs=50 +100 – 60 = 90
cogs=60 + 100 – 50 = 110thus when closing inv<opening inv gives a higher cost thus a lower gp.
so where am i wrong?
But it does not affect the margin (profit as % of sales).
If GP margin is (say) 20%, then if sales are 100, cost of goods sold will be 80. If sales are 200, then cost of goods sold will be 160.
The margin does not change just because sales and cost of goods sold increase or decrease.
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