ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A decrease in cost of goods sold will cause an increase in gross profit margin. Finding lower-priced suppliers, cheaper raw materials, using labor-saving technology, and outsourcing, are some ways to lower the cost of goods sold.

Detailed explanation-2: -Gross profit is simply total revenue minus the cost of goods sold (COGS). COGS is a very specific financial concept that includes only those business expenses required to produce goods, such as raw materials and wages for the labor required to create or assemble the product.

Detailed explanation-3: -Three main factors play into a business’s gross margin calculation: the cost of creating a product or service, the price you’re selling it for, and the number of sales you make. Changes can occur in any one of those categories, ultimately impacting your bottom line.

Detailed explanation-4: -Hence, the greater the cost, the lesser the gross profit. Also, the cost of goods sold does not include indirect costs that cannot be attributed to producing a specific product, like advertising and shipping costs. Similarly, it means that the higher the COGS, the lower the gross profit margin.

Detailed explanation-5: -If the company can increase prices while maintaining sales, the total sales figure increases, the costs stay the same, and the gross profit margin goes up. If the company can increase sales and keep the pricing at the same level, there may be savings in the costs due to higher volume.