Question

Changes in the profit margin ratio could indicate changes in any of the following except changes in:

a. the pricing policy
b. the cost structure
c. sales volume
d. product profitability

Answer 1

The profit margin ratio is affected by pricing policies, cost structure, and product profitability, but not directly by sales volume.

Step-by-step explanation:

Changes in the profit margin ratio may stem from varying factors; however, they do not directly signify changes in the sales volume. The profit margin ratio is a measure of a company's average profit or profit margin, calculated by dividing profit by the quantity of output produced. Factors that can influence this ratio include changes in the pricing policy, which affects the revenue per unit sold, and cost structure, encompassing both fixed and variable costs that affect the total and average costs of production. Additionally, changes in product profitability can be reflected in this ratio, as it indicates how much profit each product or service is contributing relative to its costs. In contrast, sales volume pertains to the quantity of products sold and would impact total profit but not directly the profit margin ratio.

Answer 2

Changes in the profit margin ratio can indicate adjustments in pricing policy, cost structure, or sales volume but do not directly reflect changes in product profitability, which relates to the profit produced by a specific product.

Step-by-step explanation:

Changes in the profit margin ratio could reflect a number of different influences within a company. However, one aspect that changes in the profit margin ratio would not reflect is a change in: d. product profitability. The profit margin ratio is influenced by factors such as a. pricing policy, which affects the selling price of goods or services; b. the cost structure, composed of fixed and variable costs that affect how costs are managed; and c. sales volume, which can indicate how many units of a product or service are being sold. However, product profitability is a measure of the profit produced by a specific product and is not directly indicated by changes in the profit margin ratio, which looks at the company's profitability as a whole.