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Question
A company’s gross profit percentage on sales has decreased by 5% in 2002 compared with 2001.
Which one of the following could be the reason behind this decrease?
Correct option:
Inventory at the end of 2002 is lower than at the end of 2001.
I kind of get this but I and not sure if my thinking process is correct. I just thought that closing inventory was reduced so cost of sales went up. And the Gross profit decreased.
Is this the correct train of thought? Are there other ways of looking at this?
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