Assume that sales are increasing faster than the rate of inflation, and that the company's gross profit rate is rising. Of the following, the most logical conclusion is that:
A) The company's cost of purchasing merchandise is rising rapidly.
B) Operating expenses are falling.
C) Demand for the company's products is very strong.
D) The company has achieved an increase in sales volume by reducing its sales prices.

Question

Quizplus · Accepted Answer

If sales are increasing faster than inflation and the gross profit rate is rising, it is likely because demand for the company's products is strong. This means that customers are willing to pay more for the products, which allows the company to increase its gross profits. Option A is unlikely because if the cost of purchasing merchandise was rising rapidly, it would negatively impact the company's gross profits. Option B is also unlikely because if operating expenses were falling, it would increase the company's net income but not affect its gross profit rate. Option D is unlikely because reducing sales prices would have a negative impact on the company's gross profit rate.

Assume That Sales Are Increasing Faster Than the Rate of Inflation