Lansing Company has a gross profit percentage of 61%,while Arbor Company has a gross profit percentage of 37%.Which of the following statements is correct?
A)Lansing Company will report a higher net income than Arbor Company.
B)Arbor Company must have a greater sales volume than Lansing Company.
C)Lansing Company is more efficient at controlling selling,general,and administrative expenses than Arbor Company.
D)Lansing Company and Arbor Company both earn enough on each sale to make a contribution to their operating costs.

Question

Quizplus · Accepted Answer

The gross profit percentage is the amount of profit generated by a dollar of sales to cover operating expenses of the company.Both companies have a positive amount of gross profit or contribution toward covering the operating expenses of the company.A higher gross profit percentage does not necessarily mean higher net income,because Arbor Company could have more gross profit and/or lower operating expenses.Selling,general,and administrative expenses do not affect gross profit.

Lansing Company Has a Gross Profit Percentage of 61%,while Arbor