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When I analyse the gross profit margin by comparing to previous accounting period, I found that there is an increase in gross profit margin. Can you tell me what are some of the reasons for the increase in gross margin? What if it shows decrease in gross profit margin, please also give me some major reason? |
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Answer: When you compare to previous accounting periods, the increase in gross profit margin may due to the following factors: · An increase in selling price without corresponding increase in costs · A decrease in costs without corresponding reduction in selling price · Opening stock in trade is valued at a figure lower than should have been · Purchases are stated at a lower figure than it should have been because of omission of invoices for purchases · Sales figures are inflated because goods sent on consignments may have been inadvertently included · Closing stock is valued at a higherfigure than it should have been. Vice versa, when you see a decrease in gross profit margin when comparing to previous accounting periods, some of the reasons may be due to: · A decrease in selling price without any corresponding decrease in costs · An increase in costs without any corresponding increase in selling price · Wrong valuation of closing stock re: valued at a lower figure · Goods purchased by proprietors have been included in purchases · Stocks might be misappropriated. |