Skip to content

ACCA Applied Knowledge · Financial Accounting · Ratios

Last year Keld Co had revenue of $900,000, gross profit of $270,000 and operating profit of $90,000. This year revenue is $1,200,000, gross profit is $336,000 and operating profit is $96,000. Which statement about this year compared with last year is correct?

Gross margin fell from 30% to 28% and operating margin fell from 10% to 8%. This year's gross profit of $336,000 over revenue of $1.2m is 28%, and operating profit of $96,000 over $1.2m is 8%. Profits rose in absolute terms, but margins declined.

  1. AGross margin fell to 28% and operating margin fell to 8%Correct
  2. BGross margin fell to 28% and operating margin rose to 10%
  3. CGross margin rose to 33% and operating margin fell to 8%
  4. DGross margin was unchanged at 30% and operating margin fell to 8%

Explanation

Last year: gross margin 270/900 = 30%, operating margin 90/900 = 10%. This year: gross margin 336/1,200 = 28%, operating margin 96/1,200 = 8%. Both margins fell even though absolute profit rose, so the other options misstate one of the margins.

Did you get it right without looking?

One question tells you little. A timed set on Ratios shows your real accuracy, how long you take and where you lose marks.

Practise RatiosFree diagnostic mock

More Ratios questions