Question

The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if

a. sales increased relative to expenses.
b. cost of goods sold increased relative to sales.
c. the tax rate has been increased.
d. dividends were decreased

Answer 1

An unchanged gross profit margin with a declined net profit margin likely indicates an increased tax rate, which reduces net profit without changing gross profit, assuming constant sales and COGS.

Step-by-step explanation:

If the gross profit margin is unchanged but the net profit margin declined over the same period, this could not have happened due to sales increasing relative to expenses or the cost of goods sold increasing relative to sales, as these would have affected the gross profit margin. Instead, this scenario could occur if the tax rate has been increased. The net profit margin considers all expenses, including taxes, so an increase in the tax rate would reduce the net profit without necessarily changing the gross profit margin, assuming that sales and costs of goods sold remain constant. Decreasing dividends does not affect net profit margins since dividends are paid out of net income.