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

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

If your cost of good sold consists of only fixed expenses, which of the following situations would you expect to be TRUE?
A) The percentage negative change in gross profit should be greater than the percentage change in sales.
B) The percentage negative 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 fixed.
D) The percentage change in gross profit should be the same as the percentage change in sales.

ANSWER

A