Your firm’s sales are estimated to increase by 10% in the next year. H

Your firm’s sales are estimated to increase by 10% in the next year. However, soon after the beginning of the year it becomes apparent that the growth in sales is more likely to be 20%.

If your cost of good sold consists of only variable expenses, and the relationship between revenues and costs remain the same, which of the following situations would you expect to be TRUE?
A) The percentage change in gross profit should be greater than the percentage change in sales.
B) The percentage change in gross profit should be less than the percentage change in sales.
C) The percentage change in gross profit should be zero because gross profit is not a function of sales if all CGS are variable.
D) The percentage change in gross profit should be the same as the percentage change in sales.

ANSWER

D