Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881



Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem

Which of the following statements is true with regard to the gross profit ratio?

1. An increase in cost of goods sold would increase the gross profit rate (assuming sales remain constant).

2. An increase in the gross profit rate may indicate that a company is efficiently managing its inventory.

3. An increase in selling expenses would lower the gross profit rate.

a. 1 c. 1 and 2

b. 2 d. 2 and 3

To determine

Concept introduction:

Gross Profit ratio:

Gross profit ratio is calculated by dividing the gross profit by sales. The formula to calculate the gross profit ration is as follows:

Gross Profit = Gross ProfitSales 

To choose:

The true statement regarding the Gross profit ratio.


Explanation for Correct answer:

b. 2. An increase in gross profit rate may indicate the efficient management of the inventory.

Hence this is the correct option.

Explanation for incorrect answers:

a.1. Increase in cost of goods sold would result in decrease in gross profit...

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