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An income statement of a company is as follows:
Profit has been increased by 60% to get the in profit by 600,000 by increasing revenue; sales would have to increase to 1.2 million. What will happen with CGS?
Suggested Answer: A
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41 comments · newest first
SE
Sena
10 months ago
So, if sales hit 1.2 million, does that guarantee profit growth?
AL
Alecia
11 months ago
Totally agree, a decrease in CGS seems likely!
EL
Eladia
11 months ago
Wait, how can profit increase without affecting CGS?
ER
Ernest
11 months ago
I think CGS will decrease, makes sense.
EL
Ellen
11 months ago
Profit up by 60% is impressive!
SH
Shaniqua
12 months ago
I think I read that if profit increases significantly, CGS could decrease as a percentage of sales. Maybe option C? But I'm not entirely confident.
JA
Jacki
12 months ago
I feel like if sales go up, CGS might also change, but I don't know if it would decrease or increase. I wish I had reviewed that section more.
WI
Wilford
12 months ago
This question seems similar to one we practiced where we had to analyze the impact of sales increases on CGS. I think it might decrease, but I can't recall the exact percentage.
JA
Jackie
1 year ago
I remember something about how profit increases can affect cost of goods sold, but I'm not sure how it applies here.
TO
Tomoko
1 year ago
Alright, I think I've got this. If revenue increases to 1.2 million, that's a 20% increase from the original revenue of 1 million. Since profit increased by 60%, the CGS must have decreased by 4% to maintain the same gross margin percentage.
MA
Maryann
1 year ago
I'm a bit confused here. The question says profit has been increased by 600,000, but it also mentions a 60% increase in profit. I'll need to double-check the math to make sure I understand the relationship between revenue, profit, and CGS.
MA
Maynard
1 year ago
Okay, let me think this through step-by-step. The company has increased its profit by 60%, which means revenue must have increased. If revenue increases to 1.2 million, I wonder how that will impact the CGS.
TY
Tyisha
1 year ago
Hmm, this looks like a tricky one. I'll need to carefully analyze the income statement and the given information to figure out how the cost of goods sold (CGS) will be affected.
ST
Stephanie
1 year ago
Okay, I'm feeling more confident now. The key is to look at the relationship between revenue, profit, and CGS. If profit increased by 60% and revenue increased to 1.2 million, then the CGS must have decreased by 4% to achieve that higher profit margin.
LA
Laticia
1 year ago
This looks like a networking question about load balancing uplink adapters. I think the answer is NIC Teaming, which allows multiple network interfaces to be grouped together to provide redundancy and increased bandwidth.
VA
Valene
1 year ago
Alright, time to put on my accountant hat. If revenue goes up by 1.2 million and profit goes up by 600,000, then CGS must have gone down. C all the way, baby!
JA
Janessa
1 year ago
I see your point, C does make sense in this scenario.
PA
Patti
1 year ago
Not necessarily, if the profit increased by 60% while revenue increased by 1.2 million, CGS must have decreased.
JU
Junita
1 year ago
But wouldn't an increase in revenue usually lead to an increase in CGS?
GR
Gracie
1 year ago
I think you're right, C seems like the correct answer.
JE
Jerilyn
1 year ago
Hmm, I'm sensing a trick question here. What if the company just decided to throw money at the problem and increase everything by 4%? Wouldn't that work too? Oh, the joys of corporate finance...
JA
Jamey
1 year ago
I'll go with C on this one. Decrease by 4%. Gotta love these cost-cutting exercises, am I right? Saves the company a bundle!
MI
Minna
1 year ago
I'm with you on this one, I also think it's A. Decrease by 3%. Cost-cutting exercises can definitely help boost profits.
LU
Lucy
1 year ago
I disagree, I believe the answer is A. Decrease by 3%. If profit increased by 60%, it would make sense for cost of goods sold to decrease.
DE
Deeann
1 year ago
I think the answer is B. Increase by 4%. It makes sense that if profit increased, cost of goods sold would also increase.
QU
Quentin
1 year ago
Wait, if revenue increases by 1.2 million and profit increases by 600,000, that means the cost of goods sold (CGS) must have decreased. Simple math, folks!
NO
Novella
1 year ago
C) Decrease by 4%
MY
Myong
1 year ago
Actually, the cost of goods sold would have decreased in this scenario, not remained the same.
MA
Markus
1 year ago
D) Will remain same
SH
Shelia
1 year ago
That's correct! When revenue increases and profit increases, it means the cost of goods sold must have decreased.
JE
Jenelle
1 year ago
A) Decrease by 3%
JA
Jackie
2 years ago
Okay, so we need to increase profit by 600,000 and revenue by 1.2 million. Seems like CGS needs to decrease to maintain the 60% profit increase. Looks like C is the correct answer.
VA
Van
1 year ago
User 2: Yeah, decreasing CGS makes sense to increase profit.
JO
Jordan
1 year ago
Yes, I think choosing option C to decrease CGS by 4% is the right decision.
SA
Salome
1 year ago
So, decreasing CGS by 4% makes sense to maintain the profit margin.
LO
Lorriane
1 year ago
User 1: I think you're right, C is the correct answer.
JE
Jeniffer
1 year ago
But we also need to consider the cost of goods sold, it might need to decrease to achieve the profit increase.
ST
Stephane
1 year ago
I agree, increasing revenue by 1.2 million seems like a good strategy.
KR
Kristel
2 years ago
But if profit increased by 60%, then CGS should decrease to maintain the same profit margin. So, I still think it's C)
AL
Alfreda
2 years ago
I disagree, I believe the answer is A) Decrease by 3%
KR
Kristel
2 years ago
I think the answer is C) Decrease by 4%