The gross profit percentage decreased from 36.5% in 2014 to 24.8% in 2015. What is the trend in...

Question:

The gross profit percentage decreased from 36.5% in 2014 to 24.8% in 2015. What is the trend in this change?

a. This change represents a downward, or negative, trend.

b. The trend cannot be determined unless the dollar amount of the change is also known.

c. The answer depends upon whether net sales increased or decreased during the period.

d. This change represents an upward, or favorable, trend.

Change in Gross Profit Margin:

The gross profit margin represents the gross profit (the difference between the sales revenue and the cost of goods sold) expressed as a percentage of sales revenue. The gross profit percentages for various periods can be compared to establish a trend.

Answer and Explanation:


Let us look at the alternatives:

a. This change represents a downward, or negative, trend. Yes, this is the correct option. The trend is downwards because the percentage decreased and it is negative because gross profit is added to net income, not subtracted from it like an expense account.
b. The trend cannot be determined unless the dollar amount of the change is also known. No, the trend in the percentages can be determined by comparing the percentages.
c. The answer depends upon whether net sales increased or decreased during the period. No, gross profit is usually assessed separately from sales revenue, because the trends can differ and if this is the case, it is also significant
d. This change represents an upward, or favorable, trend. No, obviously the percentage decreased so the trend is downwards.

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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