ACCA Applied Knowledge · Financial Accounting · Ratios
Zeta Co reported revenue of $800,000 and gross profit of $200,000 in the year just ended. Last year, revenue was $600,000 and gross profit was $180,000. Which statement best describes the movement in the gross profit margin?
The gross profit margin fell from 30% to 25%. Last year's margin was 180,000 divided by 600,000, which is 30%, while this year's is 200,000 divided by 800,000, which is 25%. Profit grew in dollars but not as fast as revenue.
- AIt fell from 30% to 25%Correct
- BIt rose from 25% to 30%
- CIt fell from 30% to 20%
- DIt was unchanged at 25%
Explanation
Current margin = 200,000/800,000 = 25%. Prior margin = 180,000/600,000 = 30%. So the margin fell from 30% to 25%. The option showing a rise reverses the years.
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.
More Ratios questions
- Brook Co has current assets of $300,000 and a current ratio of 1.5:1. It uses $50,000 of its cash to repay a trade payable. What is the curr…
- A company has equity of $600,000 (including retained earnings) and non-current liabilities consisting of $200,000 of 8% loan notes. It has n…
- Foxtrot Co has profit before interest and tax of $240,000 and finance costs of $60,000 on its borrowings. What is its interest cover?
- Kestrel Ltd reports the following for the year ended 31 December: revenue $800,000; cost of sales $520,000; operating expenses $160,000. Las…
- Delta Co has equity of $600,000 (including all reserves), a 6% loan note of $200,000 repayable in 2033 and a bank overdraft of $50,000. Usin…
- Marlo Co has a market price of $3.60 per share and earnings per share of 30 cents. The company pays a dividend of 12 cents per share. What a…