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Profitability Analysis and Analytical Issues

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Hampel Corporation’s gross profit margin has decreased substantially over the past 3 years Which one of the following best explains this decrease?

The cost of merchandise inventory has decreased while sales prices have remained the same.
Ending merchandise inventory is higher than expected.
A physical count of merchandise inventory showed missing inventory higher than expected.
Cost of goods sold has remained steady while total expenses have increased.

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (C) is correct. A physical count showing missing inventory is likely to cause a substantial decrease in gross profit margin.

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