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gross profit margin

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › gross profit margin

  • This topic has 3 replies, 3 voices, and was last updated 1 year ago by Kim Smith.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • June 28, 2021 at 6:10 am #626500
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    Sir i don’t understand how increase in Gross profit margin could be caused by overstatement of revenue?

    i am muddled because my study text states that GPM will increase because of overstatement of revenue.

    my point is if revenue is overstated then so will the gross profit, both of which should negate each other leading to a constant GPM.

    June 28, 2021 at 7:20 am #626508
    Kim Smith
    Keymaster
    • Topics: 100
    • Replies: 6787
    • ☆☆☆☆☆

    I suggest using some simple numbers to illustrate:

    Say revenue should be 120, cost of sales is 100, so GP is 20 i.e. GP% is 20%.
    Say revenue is overstated at 130 ………. GP% is 30%.

    January 18, 2022 at 9:48 am #646848
    brucen
    Member
    • Topics: 0
    • Replies: 4
    • ☆

    I am confused by this. I thought Gross Profit was GP/revenue so 16.67% or 23.08%

    January 18, 2022 at 10:30 am #646860
    Kim Smith
    Keymaster
    • Topics: 100
    • Replies: 6787
    • ☆☆☆☆☆

    @brucen – you are quite correct – but the argument remains the same whether you consider markup on cost of sales (my calculation) or margin on revenue (your calculation) – if revenue is overstated, the % change in profit (however measured) will be overstated (because cost of sales is unchanged). Hope that makes sense.

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