Question

# Discussion questions: From last year to this year, Berry Barn reported that its Net Sales increased...

Discussion questions:
From last year to this year, Berry Barn reported that its Net Sales increased from \$300,000 to \$400,000 and its Gross Profit increased from \$90,000 to \$130,000. Was the Gross Profit increase caused by (a) an increase in sales volume only, (b) an increase in gross profit per sale only, or (c) a combination of both? Explain your answer.

The correct answer is option c i.e. a combination of both sales volume and gross profit per sale is the reason why gross profit of Berry Barn has increased.

Explanation:

Last year's gross profit % = \$90,000 / \$300,000 = 30%

So, if we apply the same gross profit % to the current year's sales, gross profit would be \$120,000 (30% of \$400,000)

Hence, we can say that out of the total increase in gross profit of \$40,000, \$30,000 (\$120,000 - \$90,000) is due to the increase in sales volume and balance \$10,000 is due to the increase in gross profit per sale.