Recall that growth in sales can be decomposed into growth in quantity sold and growth in...

Recall that growth in sales can be decomposed into growth in quantity sold and growth in price. What insight can we gain from this decomposition? What difficulty are we likely to encounter when attempting to decompose sales growth?

Expert Solution

Ques. Recall that growth in sales can be decomposed into growth in quantity sold and growth in price. What insight can we gain from this decomposition? What difficulty are we likely to encounter when attempting to decompose sales growth?

Ans. Sales is result of price and quantity (price * quantity). Combination of both of these factors decide overall revenue for company. Based on these we can say that decomposition of sales gives us real picture about profits of companies i.e., how much percentage of revenue is from price factor and how much is from quantity factor. Based on these insights business can make necessary changes in both of these factors to increase overall sales revenue and profits of company. So, analysis of growth in price and growth in quantity gives us very useful information about year by year growth of overall business. Difficulty that we are likely to encounter when attempting to decompose sales growth is that company could be selling various products and services, price of products or services could have changed during year for number of time, cost involved in analysis, etc. These factor would make decomposition of sales very complex and difficult. Besides decomposition could not guarantee that business will definitely benefit from this analysis.

ekkarill92 answered 1 year ago

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