Chapter 20, Problem 20.1Q

Why do better decisions regarding the purchasing and managing of goods for sale frequently cause dramatic percentage increases in net income?

To determine

Costing:

Costing is a technique used in cost accounting to determine the cost of a product. With the optimum use of costing a company can reduce the cost burden and increase the profit margin.

To explain: The reason for better decisions regarding the purchasing and managing of goods for sale frequently cause dramatic percentage increase in net income.

Answer to Problem 20.1Q

The net income is computed by the figures of sale and purchase so, if company manages purchase and sale optimally then there should be more net income of the company.

Explanation of Solution

The percentage of net income is depend on the percentage of cost of goods sold, so if percentage of cost of goods sold decreases the percentage of net income will increase.

Conclusion

Thus, manager should take better decision regarding purchase to increase the percentage of net income.