Question

Which of the following does not affect the gross profit:

Select one:

a. dropping a product line due to declining consumer interest

b. an increase in freight costs of inventory from shipping port

c. having to pay more for insurance premiums after making several claims

d. having to change suppliers and pay more for inventory

e. reducing selling prices due to increased competition

Answer 1

Solution;

Question: Which of the following does not affect the gross profit:

Answer: Option c. having to pay more for insurance premiums after making several claims.

Explanation: Gross Profit is equal to Sales minus Cost of Goods Sold. Any change in sales component or cost of goods sold will affect the Gross Profit. Option c. i.e. having to pay more for insurance premiums after making several claims does not affect the gross profit since insurance premiums does not forms part of Cost of Goods Sold. It is an operating expense which does affect the gross profit. Rest all other options i.e. option a. dropping a product line will decrease the sales thereby affecting gross profit. Option b. an increase in freight costs will increase cost of goods sold thereby affecting gross profit. Option d. having to change suppliers and pay more for inventory will increase the cost of goods sold thereby affecting gross profit. Option e. reducing selling prices due to increased competition will decrease the total sales thereby affecting gross profit.

Thus, on the basis of above explanation our answer is option c.