Question

What are some reasons for an increase in gross profit, but a decrease in margin?

Answer 1

The possible reasons for increase in gross profit but decrease in margin can be:

1. Entity incurred huge expenses on advertising and promotion. Hence, sales got boosted but indirect expense of promotion also got increased. Hence, GP increased due to increase in sales revenue. But net margin decreased due to high promotion expenses.

2. Cost of goods sold declined for the entity but it had to incur more indirect costs to reduce direct costs. As a result, GP increased but Margin decreased.