The following information is from Megabux, Inc.'s annual report for the years ended December 31:

-Refer to the Megabux annual report above.Which of the following explains the change in the gross profit ratio over the three-year period?
A)Foreign competition has made it difficult to sell as many products as Megabux sold in the past.
B)Megabux has raised its selling price per unit.
C)Suppliers may have raised the prices that Megabux must pay for the goods that it sells,but Megabux has not passed the higher costs on to its customers with higher selling prices.
D)This is a trick question.The gross profit ratio has not changed over the three-year period.

Question

The following information is from Megabux, Inc.'s annual report for the years ended December 31:

-Refer to the Megabux annual report above.Which of the following explains the change in the gross profit ratio over the three-year period?
A)Foreign competition has made it difficult to sell as many products as Megabux sold in the past. 
B)Megabux has raised its selling price per unit. 
C)Suppliers may have raised the prices that Megabux must pay for the goods that it sells,but Megabux has not passed the higher costs on to its customers with higher selling prices. 
D)This is a trick question.The gross profit ratio has not changed over the three-year period.

Quizplus · Accepted Answer

The gross profit ratio is calculated as (Gross Profit / Sales) * 100. A change in this ratio over time could indicate changes in the cost of goods sold or sales prices. If suppliers have raised prices and Megabux hasn't increased its selling prices, the cost of goods sold would rise relative to sales, decreasing the gross profit ratio. This scenario aligns with option C, suggesting that increased costs from suppliers have not been offset by higher selling prices, impacting the gross profit ratio.

The Following Information Is from Megabux, Inc