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cost of goods sold increased relative to sales. sales increased relative to expenses. the goverment increased the tax rate. dividends were decreased.
the goverment increased the tax rate is supposed to be the right answer
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.
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.
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"
This could have happenned because the government increased the tax rate
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%
None from Above Choices
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.
Correct Answer is : the goverment increased the tax rate.
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.
