Which of the Following Provides the best Rationale Regarding Analysts

question 61

Multiple Choice

Which of the following provides the best rationale regarding analysts' views about the information value of the gross profit rate versus the gross profit amount?

• A)The gross profit amount is more informative than the gross profit rate because it is a dollar amount rather than a ratio.
• B)The gross profit amount is less informative than the gross profit rate because the latter presents a meaningful relationship between gross profit and net sales.
• C)The gross profit amount is more informative than the gross profit rate because the gross profit rate is only used to describe a few industries while the gross profit amount is universally used.
• D)The gross profit amount is more informative than the gross profit rate because high volume operations are able to calculate the gross profit rate but not the gross profit amount.

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Definitions:

Hourly Wage Rate

The amount of money paid to an employee for every hour worked, typically applied to part-time or contract workers.

Gross Pay

The total amount earned by an employee before any deductions or taxes are taken out.

Medicare Tax

A federal tax that helps fund the Medicare program, which provides health insurance for individuals who are 65 years old and older or who meet other specific criteria.

Salaries Payable

An account on the balance sheet that represents the amount of unpaid wages owed to employees at the end of a reporting period.