An increase in the gross profit margin combined with a decrease in the profit margin indicates to investors that the company's
A) sales decreased during the period.
B) cost of goods sold increased during the period.
C) profit increased during the period.
D) operating expenses increased during the period.

Question

Quizplus · Accepted Answer

An increase in the gross profit margin suggests that the company has become more efficient in producing its goods or has sold them at higher prices, leading to a higher profit on each sale before accounting for operating expenses. A decrease in the profit margin, however, indicates that despite the higher gross profit, the net profit has decreased, likely due to an increase in operating expenses. This scenario does not necessarily imply changes in sales volume, cost of goods sold, or overall profit levels without more context.

An Increase in the Gross Profit Margin Combined with a Decrease