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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?
Correct Answer in the book:
The mix of products sold in the current year has changed.
? Please explain the meaning of “mix of products sold” with a suitable example in the context of this question.
Suppose last year 50% of the sales were of product A which has a low profit margin and the other 50% were of product B which had a much higher profit margin. The overall profit margin would be somewhere in between the individual profit margins.
Suppose this year, only 25% of the sales were of product A and the other 75% were of product B (which is what changing the mix of the products means). The overall profit margin for the company would end up being higher this year that last year.