Gross profit margin

Question 1

What does Gross Profit Margin measure?

Answer 1

measures a business’ profitability by indicating how much of each dollar of net sales is retained as gross profit after accounting for the cost of goods sold.

Question 2

increases when?

Answer 2

• due to increase in selling price whilst cost price remains constant
• decrease in cost price while selling price remains constant
• both selling price and cost price increasing but selling price at a greater magnitude

Question 3

decreases when?

Answer 3

• decrease in selling price while cost price remains constant
• increase in cost price while selling price remains constant
• both selling price and cost price increasing but cost price at a greater magnitude

Question 4

3 benchmarks

Answer 4

• previous reporting period
• budgeted performance
• industry average

Question 5

improvement strategies?

Answer 5

1. increase average selling price of inventory to increase mark up
2. decrease average cost price by buying bulk, discounted prices
3. decrease cost price by sourcing inventory from cheaper suppliers