Question

Boots and Bags Ltd. reported a gross profit margin of 25% in 2018. Indicate which of the following items would result in an increase in the company's gross profit margin in 2019. a. An increase in the number of boots and bags sold. b. A decrease in the commission rate for selling each bag or pair of boots. c. A decrease in the wholesale cost of bags. O d. A decrease in the number of customers paying promptly and not taking the company's 2% discount for paying in under 10 days. O e. An increase in the selling price of boots. O f. An increase in freight in costs. O g. An increase in the wholesale cost of boots.

Answer 1

Answer

Items which will increase gross profit margin are

A,C, D, E....

Increase in number of units sold increase gross profit in dollars but not in percentage. So exclude (A) if we are talking about gross profit percentage.

A decrease in wholesale cost of bags will reduce cost of goods sold hence it will increase gross profit.

If number of customers paying within discount period decrease the revenue from sales increase without any increase in cost of goods sold so that also affects Gross profit margin positively.

Lastly Increase in selling price increase gross profit margin.

.

Explanation

Commission decrease will not affect gross profit.

Increase in freight cost and wholesale price of boots decrease gross profit not increase.