Question

The following data for the years ended December 31, 2015 and 2016 were presented to the...

The following data for the years ended December 31, 2015 and 2016 were presented to the management of Zigzag Company:

Net Sales Cost of Sales Gross Margin
2015 $1,363,000 $911,800 $451,200
2016 $1,250,000 $776,000 $474,000

The management requested you to determine the cause of the decline in Gross Profit
on Sales inspite of the favorable information given by the sales division that the quantity sold in 2016 was higher than in 2015 and that the production costs in 2016 were lower than that of 2015 by 6%. What is the percentage change in volume?

Homework Answers

Answer #1
2015 2016
Sales $1,363,000 $1,250,000
Less:Cost of Sales $911,800 $776,000
Gross Margin $451,200 $474,000
One of the easy factor of declining gross margin is higher cost of goods sold
but in the present case the production costs in 2016 were lower than that of 2015 by 6%
So the other reason of gross margin decline is sale price of the units sold in 2016 is lower
than the sale price of the units sold in 2015.
2015 Percentage 2016
Sales $1,363,000 100.00% $1,250,000 100.00%
Less:Cost of Sales $911,800 66.90% $776,000 62.08%
Gross Margin $451,200 33.10% $474,000 37.92%
The production costs in 2016 were lower than that of 2015 by 6%. Then the percentage change
in volume would be the same as 6%
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