Final answer:
Net Profit Margin (NPM) increases when sales go up by 10% and expenses increase by 9.5%, because sales are rising faster than expenses, leading to a greater profit margin.
Step-by-step explanation:
When sales increase by 10% and expenses increase by 9.5%, the Net Profit Margin (NPM) increases. This is because the Net Profit Margin calculation looks at how much of every dollar of sales a company keeps as profit after accounting for all expenses. Here, although both sales and expenses are increasing, sales are increasing at a slightly higher rate than expenses. This leads to an increase in net profit assuming the initial profit was positive.
To understand the distinction with a practical example, let's consider that over the past 10 years, the cost of purchasing a fixed basket of goods increased by 25% and your salary also increased by 25%. In this scenario, your personal standard of living would be considered to have held constant because your salary has increased in line with your expenses.