Which of the following describes the change in both the gross profit ratio and expense ratio from 2019 to 2020?
| Gross profit ratio (gross profit ÷ sales) | Expense ratio (total expenses ÷ sales) |
|-------------------------------------------|---------------------------------------|
| A - HSC - SSCE Business Studies - Question 18 - 2020 - Paper 1
Question 18
Which of the following describes the change in both the gross profit ratio and expense ratio from 2019 to 2020?
| Gross profit ratio (gross profit ÷ sales) | Expens... show full transcript
Worked Solution & Example Answer:Which of the following describes the change in both the gross profit ratio and expense ratio from 2019 to 2020?
| Gross profit ratio (gross profit ÷ sales) | Expense ratio (total expenses ÷ sales) |
|-------------------------------------------|---------------------------------------|
| A - HSC - SSCE Business Studies - Question 18 - 2020 - Paper 1
Step 1
Analyze the Gross Profit Ratio
96%
114 rated
Only available for registered users.
Sign up now to view full answer, or log in if you already have an account!
Answer
The gross profit ratio indicates the percentage of sales revenue that exceeds the cost of goods sold. If this ratio improved from 2019 to 2020, it suggests that either the cost of goods sold decreased or sales increased, leading to a higher ratio.
Step 2
Analyze the Expense Ratio
99%
104 rated
Only available for registered users.
Sign up now to view full answer, or log in if you already have an account!
Answer
The expense ratio shows the proportion of expenses to sales. An improved expense ratio means that expenses have decreased relative to sales, suggesting better cost management. If this ratio worsened, it indicates that expenses have increased relative to sales.
Step 3
Determine the Correct Answer
96%
101 rated
Only available for registered users.
Sign up now to view full answer, or log in if you already have an account!
Answer
Based on the information given, if both the gross profit ratio improved and the expense ratio improved, then the correct answer would be A. However, if the gross profit ratio improved but the expense ratio worsened, the answer would be B.
