What would be the best strategy for a business to increase its gross profit? (A) Use cost centres (B) Reduce fixed costs (C) Minimise expenses (D) Use sale and leaseback - HSC - SSCE Business Studies - Question 8 - 2012 - Paper 1

To determine the best strategy for increasing gross profit, we need to analyze each option in the context of how it affects revenues and costs:

1. Use cost centres (A): This strategy involves managing costs more effectively, but does not directly influence revenue. Therefore, while it can help control costs, it may not be the most effective way to boost gross profit directly.

2. Reduce fixed costs (B): Lowering fixed costs can lead to an increase in gross profit. Fixed costs do not fluctuate with production levels; hence, reducing them can improve profit margins significantly without necessarily increasing sales.

3. Minimise expenses (C): Similar to option B, minimizing expenses can also help increase gross profit by decreasing the overall costs associated with generating revenue. However, this may not always be sustainable, as it can affect operational quality or capacity.

4. Use sale and leaseback (D): This option allows a business to convert fixed assets into cash, which can provide immediate funds. While it improves liquidity, it does not inherently increase gross profit since it may involve regular lease payments in the future.

Evaluating these strategies, reducing fixed costs (B) directly enhances the profit margin on current revenues. Therefore, the best strategy for a business looking to increase its gross profit would be to reduce fixed costs.