The owner of a local pet supply store fears their efforts to increase the store's gross profit and net income are futile. They have compiled the following information from their financial statements over the last 2 years: What is the percent difference in the Gross Margin ratio for year 2 compared to year 1? (Round the gross margin for years 1 and 2 to two decimal places.)
A) The percentage differs between years 1 and 2 by 12.35%.
B) The percentage differs between years 1 and 2 by 14.18%.
C) The percentage differs between years 1 and 2 by 14.86%.
D) There is no difference in the Gross Margin ratio percentage between those two years.

Question

The owner of a local pet supply store fears their efforts to increase the store's gross profit and net income are futile. They have compiled the following information from their financial statements over the last 2 years:  What is the percent difference in the Gross Margin ratio for year 2 compared to year 1? (Round the gross margin for years 1 and 2 to two decimal places.)
A) The percentage differs between years 1 and 2 by 12.35%. 
B) The percentage differs between years 1 and 2 by 14.18%. 
C) The percentage differs between years 1 and 2 by 14.86%. 
D) There is no difference in the Gross Margin ratio percentage between those two years.

Quizplus · Accepted Answer

This question requires familiarity with gross profit and its related financial performance metrics including gross margin and knowledge about how these items are expressed as a percentage of sales. First, calculate the gross margin ratio. That will equal the gross profit divided by the total sales. Year 2's Gross Margin ratio is: ($550,000 - $398,000)/$550,000 = $152,000/$550,000 = 0.2764 or 27.64%. Year 1's Gross Margin ratio is: ($520,000 - $450,000)/$520,000 = $70,000/$520,000 = 0.1346 or 13.46%. The difference between those percentages is: Percentage in Year 2 - Percentage in Year 1 or 27.64% - 13.46% = 14.18% (Choice B).

The Owner of a Local Pet Supply Store Fears Their