Originally posted by Suney_J
u dont count cogs as an expence. u know this by lookin at yr 2 of the graph, because both A and C state that expences are increasin in yr 2 therefore if cogs is counted as an expence then why didn't the GRR decrease, thats how u know that expences only apply to net profit.
then when u look at yr 1, A says expences decreased, that may b tru but it doesn't say why the GPR increased cuz as we now know expences only aply to net profit.
and shaz was rite in sayin that if sales increase that cogs increase as well, but C stated that an improvement in sales performance and that is slightly different if u can tell the difference.
ne way im in a win-win situaton, if u guys are rite i get a mark, and if ur wrong im rite
no, but you see this is where your thinking is wrong..
By the graph, i can tell you that this is what is happening. I will do it in terms of each dollar that goes through the business:
In year one, operational expenses remain constant for each dollar that goes through the business
The amount going through as COGS for each dollar has reduced in year one (this results in the increasing GPR and NPR)
In year 2, the COGS paid for each dollar throughout the business remains the same (i.e 80 cents in the dollar)
howevor operational expenses increase resulting in reduced NPR.
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Ok as long as we can get an agreement on what I have said above, then I can continue to put my arguement forward.
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Ok, now the reason why it has to be A is simply because it is the most correct answer. I dont think its a particularly good question as you are right, you typically link expenses with net profit and not gross profit, but the thing is that its definately not C because you cant say from anything in the graph that sales have improved.
The reason why they havent impvoved, is because this graph would be the same if sales were stronger, weaker or the same. It would have no impact on the shape of the graph.
I think its a stupid question, but the fact is that the graph shows you nothing about sales performance.
Sales performance is a stupid way of wording it as well, cos sales performance to me (and probably the hundreds of others who put A) means increased sales. So if they mean anything more than increased sales then its a stupid and faulty question if the answer is C. Likewise I agree that A also has its faults in that expenses are usually seen as a net profit issue, howevor this is only operational expenses, and i think that there would be arguement that COGS can be seen as an expense (I mean if you werent doing business studies and you thought to yourself if cogs was an expense you would say it was)...
So I think its a stupid question, but if its A, then i would say its the most correct answer, but if its C then its definately a stupid question.
but yeah. the fact is that you cant detirmine increased sales from the graph so C in my mind is invalid. (the only way it could be C is if they mean something more than increased sales, like if they meant something like increased profitablility which would be bullshit because the wording would be attrocious if they meant that)
