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revenue, COS and GPM

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › revenue, COS and GPM

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by Kim Smith.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • July 3, 2021 at 2:51 am #626862
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    Revenue has grown by 28% in the year however, cost of sales has only increased by 10%.

    This increase in sales may be due to the bonus scheme and the advertising however, this does not explain the increase in gross margin.

    There is a risk that sales may be overstated.

    P.S.- GPM has increased from 44.4% to 52.2% y-o-y.

    Ma’am i don’t understand in what context are they talking about GPM? what exactly doesn’t explain the increase in GPM?

    July 3, 2021 at 8:56 am #626882
    Kim Smith
    Keymaster
    • Topics: 100
    • Replies: 6803
    • ☆☆☆☆☆

    It’s the same issue I addressed on your previous post https://opentuition.com/topic/gross-profit-margin-4

    If margins are assumed to be constant – increased sales volume does not change GP% because cost of sales should also be increased for that volume. So if GP% increases without a valid explanation (e.g. sales prices were increased during the year but without a corresponding increase in costs of sales) – either revenue is overstated and/or cost of sales is understated (e.g. purchases are understated)

    July 3, 2021 at 12:58 pm #626895
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    ohhh so you are saying that the fact that COS didn’t increase by 28% (i.e. as much as revenue) means that sales volumes have not increased(due to factors such as advertising or bonus), but instead overall revenue has increased due to other manipulative tactics-which further gets corroborated through abnormal rise in GPM.

    am i getting it correctly?

    July 3, 2021 at 1:06 pm #626896
    Kim Smith
    Keymaster
    • Topics: 100
    • Replies: 6803
    • ☆☆☆☆☆

    Yes!

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