When will volume changes cause volatility in the gross profit margin?
A) If cost of goods sold includes fixed costs which do not vary proportionately with volume changes.
B) In industries with little capital.
C) In industries having no fixed costs.
D) If cost of goods sold includes costs that vary proportionately with volume changes.

Question

Quizplus · Accepted Answer

If the cost of goods sold includes fixed costs which do not vary proportionately with volume changes, any change in volume will modify the gross profit margin. For example, in manufacturing, there may be a fixed cost component in the production process that does not directly correlate with the number of units produced. As the volume changes, the proportion of fixed costs to variable costs changes, affecting the gross profit margin.

When Will Volume Changes Cause Volatility in the Gross Profit