Difficulty: Easy

Average Score: 100%

Which change occurred if the cost of goods sold moved from 76.8% to 72.6% of sales?

Rationale

Gross profit percentage increased by 4.2%.

When the cost of goods sold (COGS) decreases from 76.8% to 72.6% of sales, the gross profit percentage, which is calculated as (Sales - COGS) / Sales, effectively increases. This change reflects a larger portion of sales revenue remaining after accounting for the cost of goods sold.

A (Gross profit percentage increased by 4.2%) CORRECT

This choice is correct because a reduction in COGS results in a higher gross profit percentage. The gross profit percentage shifts from 23.2% (100% - 76.8%) to 27.4% (100% - 72.6%), leading to an increase of 4.2%.

B (Gross profit percentage decreased by 4.2%) YOUR ANSWER

This choice is incorrect because a decrease in COGS actually increases the gross profit, not decreases it. Moving from 76.8% to 72.6% in COGS means that less of the sales revenue is consumed by the costs, thereby increasing the gross profit percentage.

C (Net profit percentage increased by 4.2%) YOUR ANSWER

This choice is misleading because although the gross profit percentage increases, the net profit percentage is influenced by other factors such as operating expenses and taxes. Thus, we cannot confirm a direct increase in net profit percentage solely based on changes in COGS.

D (Net profit percentage decreased by 4.2%) YOUR ANSWER

This choice is also incorrect because there is no direct evidence that the net profit percentage decreases as a result of changes in COGS. The net profit percentage depends on multiple factors and cannot be determined solely from the gross profit change.

Conclusion

The movement of COGS from 76.8% to 72.6% of sales results in an increase in the gross profit percentage by 4.2%. This reflects a more favorable cost structure, allowing for greater revenue retention after covering the cost of goods sold. The net profit percentage remains uncertain as it is contingent upon additional variables beyond gross profit.

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