Question

NPM increases/decrease/stays the same when sales stay the same and expenses decrease:

A. Increases; Improved efficiency in cost management.
B. Decreases; Indicates declining profitability.
C. Stays the same; Sales and expenses are unrelated.
D. Decreases; Lower expenses may not impact profitability.

Answer 1

When sales remain the same and expenses decrease, the Net Profit Margin (NPM) increases due to an increase in net income, indicating improved efficiency in cost management.

Step-by-step explanation:

If sales stay the same and expenses decrease, Net Profit Margin (NPM) would increase. This is because NPM is calculated as net income divided by revenue. A decrease in expenses while keeping sales constant leads to an increase in net income, hence, improving the net profit margin. This scenario indicates improved efficiency in cost management, not declining profitability.