During 2014, Home Style's cost of goods sold percentage was 68.2%, and selling and store operating costs was 19.3% of sales. During 2013, Home Style's cost of goods sold percentage was 68.9% while selling and store operating costs was 19.2% of sales. What effect would the change in these percentages have on 2014's gross profit percentage and profit margin percentage?

Question

Quizplus · Accepted Answer

The decrease in the cost of goods sold percentage would increase the gross profit percentage because it means that a lower percentage of sales is being used to cover the cost of goods sold. This would also increase the profit margin percentage because the company would have more money left over after covering its costs. However, the increase in the selling and store operating costs percentage would decrease the profit margin percentage because it means that a higher percentage of sales is being used to cover these costs. The gross profit percentage would still increase because it is only affected by the cost of goods sold.

During 2014, Home Style's Cost of Goods Sold Percentage Was