Page 360 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Chapter 19

Gross profit margin (GP%)

Gross profit

––––––––––––– × 100

Revenue

TUTOR GUIDANCE
Common reasons for movements in GP%:

 sales price movements – product launched at lower (or higher) prices,
changes in prices to react to market conditions

 cost price movements – use foreign suppliers therefore foreign currency
gains/losses in COS, new suppliers charge different rates
 changes in sales mix

 changes in efficiency
 changes in inventory valuation policies e.g. FIFO to AVCO when prices falling
will cause closing stock to be higher thus COS lower and GP% improves.

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