An organization had a gross profit margin of 40 percent in year one and in year two. The net profit margin was 18 percent in year one and 13 percent in year two.
Which of the following could be the reason for the decline in the net profit margin for year two?
The gross profit margin measures profit after accounting for the cost of sales, while the net profit margin accounts for all other expenses, including taxes. If the gross profit margin remains the same but the net profit margin declines, it indicates that the decline is due to factors other than the cost of sales. One possible reason for a decreased net profit margin, while maintaining the same gross profit margin, could be an increase in corporate taxes imposed by the government. This would reduce the net profit without affecting the cost of sales and, therefore, the gross profit margin.
This should be D