Question

Gross profit may be increased by :
1) Increasing selling price
2) Reducing cost of sales
3) Increasing sales of items with higher margin
4) Increasing cost of sales

• A. One only
• B. 1,2,3 and 4
• C. 1, 2 and 3
• D. 2, 3 and 4

Answer 1

Answer: (C)

1, 2 and 3

1. Everything else remaining constant when the selling price is increased it would lead to a higher sales amount and in effect a higher gross profit.
2. Everything remaining constant when the cost of sale is reduced the gross profit would increase, because Sales minus Cost of Sales = Gross profit.
3. When sales of items with higher margin are increased it would ultimately lead to a higher sales figure and hence higher gross profit.
4. Everything remaining constant when the cost of sale is increased the gross profit would decrease, because Sales minus Cost of Sales = Gross profit.