Question

What factors affect a company’s gross profit rate—that is, what can cause the gross profit rate to increase (i.e., go up) and what can cause the gross profit rate to decrease (i.e., go down? Give one example of something that could decrease gross profit rate and one example of something that could increase gross profit rate. Please try not to use the same type of example for these examples (i.e., increase or decrease of the same type of item).

Answer 1

The gross profit rate is depends upon the number of factors like:

1. Change in Sales revenue earned during the year.

2. Change in Cost of goods sold during the year.

3. Cost of goods sold comprises of various element of cost like material, wages, other direct manufacturing ocst. Any change in these will cause the change in Gross profit.

The factor which lead to inccrease in Gross profits:

1. Increase in Sales revenue with proportionate increase in cost of goods sold.

2. There may be reason that the cost of goods sold may not change in proportion to sales as due to decrease in prices of input like material, labour etc.

The factor which lead to Decrease in Gross profits:

1. Decrease in sales revenue with proportionate decrease in cost of goods sold.

2. There may be reason that cost of goods sold may not change in proprotion to sale as due to increases in price of inputs like material, labout, etc.

We have factored all the items for change, increase or decrease in Gross profit. The answer may be choosen accordingly.

1.