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The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if?

cost of goods sold increased relative to sales. sales increased relative to expenses. the goverment increased the tax rate. dividends were decreased.

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تم إضافة السؤال من قبل خالد ابراهيم , Senior Accountant , Al Khayyat Group /Peugeot and Mazda Automative agent in Jordan
تاريخ النشر: 2013/12/03
Rehan Qureshi
من قبل Rehan Qureshi , Financial Consultant , Self Employeed

the goverment increased the tax rate is supposed to be the right answer

Mohamed Said
من قبل Mohamed Said , Financial Controller , Esol Education

As the gross profit margin is unchanged, the cost of goods sold increased relative to sales but that not affect the net profit margin.

If sales increased relative to the expenses, itseffect on the net profit margin will be zero as the effect of increasing the expenses is elemenated by the relative increase of sales.

If devidends were decreased it will have no effect on the net profit margin as the dividends are determined upon the net income, so it is the one affected by the net profit margin.

The increase in the government tax rate is the one which affect the net profit margin as tax expenses are deducted right before generating the net income. And as the gross profit margin is unchanded so, the only option from obove wihch make the net profit margin decrease is the increase of tax rate.

Irfan Hamid ACCA
من قبل Irfan Hamid ACCA

If gross profit margin is unchanged and the net profit margin declined and at the same time sales volume is constant then it can be due to expenses increase if this not the case then if net profit you are refering to is after tax than it is due government tax rate increase.

 

There is no question of divident as they are issued from retained earnings.

Elhassan Fouad Amin Himaid
من قبل Elhassan Fouad Amin Himaid , Data Quality global senior manager , SABIC

Assuming no change on other factors and that the selction has to be from the given options only then the cause will be the option of  "the goverment increased the tax rate."

I would also look carefully at "sales increased relative to expenses." and assume the correct statement should have been "sales expense increased relative to sales"

Md. Nurujjaman
من قبل Md. Nurujjaman , Finance and Admin Manager , Zaman Enterprise

within4 options only tax is effect on calculate gross profit to net profit. so the right is-the goverment increased the tax rate.

Mohammad Tohamy Hussein Hussein
من قبل Mohammad Tohamy Hussein Hussein , Chief Executive Officer & ERP Architect , Egyptian Software Group

This could have happenned because the government increased the tax rate

ABDUL VAHAB MANADI
من قبل ABDUL VAHAB MANADI , Financial Controller (F&B Experience) , Abu Dhabi National Hotels Compass ME LLC

Govt Dues increased.

 

Any overhead raise will Decrease Net profit margin.

 

 

However one Hidden Point in this Question.

The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if?

 

This Question mentioned about margin. So reduction in sales will not alter Gros profit Margin. But will reducse net profit margin due to Commited expence. this law called Marginal costing or Variable and fixed costing.

 

For Example 

 

    Case1   Case2           SALES    10,000.00    5,000.00           COST of Sales      6,000.00    3,000.00           Gross Profit (Contribution)      4,000.00    2,000.00           GP margin   40%   40%                     Fixed Over heads      1,000.00    1,000.00 Variable Ohs      1,000.00        500.00           Net Profit      2,000.00        500.00           NP Margin   20%   10%

Hossam Siyam
من قبل Hossam Siyam , Group CFO , Tatweer Group

None from Above Choices

Kaleem-ur-Rehman Rana
من قبل Kaleem-ur-Rehman Rana , Finance Executive , Open D Group (ODG)

Correct answer is option #3the goverment increased the tax rate.Option1 is incorrect because if this would have been the case then Gross Profit would have been changed.Option2 is incorrect because if sale is incerasing relative to expenses then it will result in increase of Gross Profit and Net Profit.Option4 is incorrect because dividend is paid from Profit after Tax. i.e profit attributable to shareholders.

Khurram Zubair
من قبل Khurram Zubair , Senior Accountant , MPI Group

Correct Answer is : the goverment increased the tax rate.

Ahmad Bilal Awan
من قبل Ahmad Bilal Awan , Accounts Manager , Art Marine LLC

A) Wrong because cost os good is subtracted BEFORE gross profit is calculated, so GP will not stay same

B) That will only affect gross profit margin. Plus, cost of sales is usually less so even if they increase by same percentage, the difference will be there in G.P

C) Correct answer. Tax rates are applied on profits before tax figure, if the tax percentage is increased, it will decrease the net profit after tax.

D) Dividends are payed out of net profit, mostly. It would not change the amount of net profit for the year.