Given the following data: If net sales decreases by 10%,and cost of goods sold increases by 15%,gross margin would:
A) increase by 40%
B) decrease by 40%
C) increase by 47.5%
D) decrease by 47.5%

Question

Given the following data:  If net sales decreases by 10%,and cost of goods sold increases by 15%,gross margin would:
A) increase by 40% 
B) decrease by 40% 
C) increase by 47.5% 
D) decrease by 47.5%

Quizplus · Accepted Answer

To calculate the new gross margin, we need to use the formula: 
Gross Margin = Net Sales - Cost of Goods Sold

If net sales decrease by 10%, the new net sales will be: 
New Net Sales = Old Net Sales * (1 - 10%) 
New Net Sales = Old Net Sales * 0.9

If cost of goods sold increases by 15%, the new cost of goods sold will be: 
New Cost of Goods Sold = Old Cost of Goods Sold * (1 + 15%) 
New Cost of Goods Sold = Old Cost of Goods Sold * 1.15

Now we can calculate the new gross margin: 
New Gross Margin = New Net Sales - New Cost of Goods Sold 
New Gross Margin = Old Net Sales * 0.9 - Old Cost of Goods Sold * 1.15

We don't have the exact numbers for net sales and cost of goods sold, but we can still determine how the gross margin will change based on these calculations.

We can simplify the equation for the new gross margin as follows:

New Gross Margin = Old Gross Margin * (0.9 - 1.15) 
New Gross Margin = Old Gross Margin * (-0.25)

This means that the new gross margin will be 25% less than the old gross margin. Therefore, the answer is D) decrease by 47.5%.

Given the Following Data: If Net Sales Decreases by 10%,and