Dell can be considered a good example of a 'Chinese restaurant' in the sense that it makes its...

Question:

Dell can be considered a good example of a 'Chinese restaurant' in the sense that it makes its money by having a high asset turnover with a relatively low net profit margin. If Dell were to increase the sales of laptops to consumers relative to the sales of desktops to businesses, would it help their gross profit margin? Explain.

What Is The Gross Margin Ratio:

The Gross Margin Ratio is a profitability metric used by companies to monitor and assess their performance. The Gross Margin Ratio reflects the amount of gross profit earned for every single dollar of sales made to customers during the period.

Answer and Explanation:

The answer is that it depends.

  • Dell has been going through a major transformation ever since it was taken private a few years ago. Whether increasing laptop sales to the detriment of business desktop sales has a positive impact on gross margin depends on the new gross margin percentages for each of these segments. If Dell's consumer laptops are streamlined in this transformation and now have a better gross margin ratio than business desktops, then the answer is yes.

Learn more about this topic:

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How to Calculate Gross Profit Margin: Definition & Formula

from Financial Accounting: Help and Review

Chapter 5 / Lesson 17
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