In 20X3, T Co.'s gross proﬁt percentage was 39.8% while their competitor, WWW's percentage was 31.8%. What was the most likely reason for WWW's lower percentage?
A) Lower selling prices
B) Lower product cost as a percentage of sales
C) Ability to differentiate their product in consumers' eyes
D) Higher selling prices

Question

Quizplus · Accepted Answer

Lower selling prices can lead to a lower gross profit percentage if the cost of goods sold does not decrease proportionately. This is because the gross profit percentage is calculated as (Sales - Cost of Goods Sold) / Sales. If sales decrease due to lower selling prices without a corresponding decrease in costs, the gross profit percentage will decline.