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CMA Intermediate · Financial Management and Business Data Analytics · Comparative, Common-Size Financial Statements and Trend Analysis

Godavari Ltd's comparative statement shows: Year 1 sales ₹10,00,000, cost of goods sold ₹6,00,000; Year 2 sales ₹12,00,000, cost of goods sold ₹7,50,000. Which statement is correct about gross profit?

Gross profit rose 12.5 per cent, from ₹4,00,000 to ₹4,50,000, while gross margin fell from 40 to 37.5 per cent of sales. Cost of goods sold grew faster than sales, which squeezed the margin even as absolute profit increased.

  1. AGross profit rose by 12.5% and gross margin on sales fellCorrect
  2. BGross profit rose by 25% and gross margin on sales fell
  3. CGross profit rose by 12.5% and gross margin on sales rose
  4. DGross profit rose by 25% and gross margin on sales was unchanged

Explanation

Gross profit Year 1 = 4,00,000 (40% of sales); Year 2 = 4,50,000 (37.5% of sales). Rise = 50,000/4,00,000 = 12.5%. Margin fell from 40% to 37.5%. The 25% figure is COGS growth (1,50,000/6,00,000), not gross profit.

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