When a company that sells its products for a (gross)profit increases its sales by 15 percent and its cost of goods sold by 7 percent,the cost of goods sold ratio will
A) Increase.
B) Decrease.
C) Remain unchanged.
D) Not be able to be determined with the information provided.

Question

Quizplus · Accepted Answer

The cost of goods sold ratio is calculated as the cost of goods sold divided by sales. If sales increase by 15% and the cost of goods sold increases by only 7%, the ratio will decrease because the denominator (sales) is increasing at a faster rate than the numerator (cost of goods sold).

When a Company That Sells Its Products for a (Gross)profit