The Starch Company experiences a 20% increase in sales over the previous year. However, gross profit actually decreased by 10% from the previous year. What are some of the possible causes for an increase in sales but a decline in gross profit?
Rising costs to either manufacture or purchase inventory could be responsible for a decline in gross profit in the face of an increase in sales. Assume that 1,000 units of a product are sold with a unit cost of $75 and a selling price of $100 . Sales total $100,000, and gross profit is $25,000 . Assume that in the following year, the company raises the selling price to $120 because of rising costs. If the cost to make a unit goes up to $97.50 and the company sells another 1,000 units, sales will increase by 20% to $120,000, but gross profit will decrease to 1,000 × ($120 – $97.50), or $22,500—a decrease in gross profit of 10%.
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Fill in the blank(s) with correct word
In a normal cost system, actual production overhead costs are typically accumulated in an Overhead Control account and assigned to Work in Process at the end of the period
Indicate whether the statement is true or false
What is the pro forma earnings approach, and what problem does it present. Also, explain how pro forma earnings differs from the G4+1 income statement proposal.
What will be an ideal response?
Annual marketing plans are usually used for ________
A) well-established markets B) nascent markets C) dynamic markets D) declining markets