If Moon Corporation's gross margin declined,which of the following is TRUE?
A)Its cost of goods sold increased.
B)Its cost of goods sold as a percent of sales increased.
C)Its sales increased.
D)Its net profit margin was unaffected by the decline.

Question

Quizplus · Accepted Answer

Gross margin is calculated as (Sales - Cost of goods sold) / Sales. If the gross margin declines, it means the ratio of cost of goods sold to sales has increased, i.e. cost of goods sold as a percent of sales has increased. This implies that choice A is possible, but not necessarily true. It is also possible that sales have decreased or the company's expenses have increased, leading to a decline in gross margin and net profit margin (making choice D false). However, since we know for certain that the gross margin has declined, we can say that choice B is definitely true. Choice C may or may not be true, as we do not have enough information to determine the impact on sales.

If Moon Corporation's Gross Margin Declined,which of the Following Is