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In the prior financial year, Peekaboo Co had a gross profit margin of 9%. In the current financial year, the gross profit margin has increased to 16%.
Which of the following might explain the movement in the gross profit margin?
A) The volume of sales has been higher in the current year.
B ) Prompt payment discounts received have been higher in the current year.
C ) There have been higher levels of inventory obsolescence in the current year.
D ) The mix of products sold in the current year has changed.Is the answer A?
Why are you attempting a question for which you do not have answer? You should be using a Revision Kit from one of the ACCA approved publishers.
The answer is not A. Selling more (or less) units has no affect on the profit margin.
Could you give me an explanation as to why it’s not option A? I didn’t seem to get the concept well
Have you watched my free lectures on the Interpretation of Financial Statements?
Suppose the sales are 1,000 and the gross profit is 100. Then the gross profit margin is 10%.
Suppose the sales go up to 1,500. If the gross profit increases to 200 then the gross profit margin will remain at 10%.
The gross profit margin will only change if either the selling price per unit changes or the cost per unit changes.I do suggest that you watch the free lectures – they are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
Also, I did ask before why on earth you are attempting a question for which you do not have the answer. That is not the way to learn and you really must buy a Revision Kit from one of the ACCA approved publishers if you are to pass the exam. The Revision Kit is full of exam-standard questions for practice, and practice is vital to passing the exam.
Thank you sir! Oh well, these questions were a part of the mock test series provided by one of the ACCA approved publishers, and they didn’t seem to have the answers!
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