A Shift in the Sales Mix from High-Margin Items to Low-Margin

question 157

True/False

A shift in the sales mix from high-margin items to low-margin items can cause total profits to decrease even though total sales may increase.

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Definitions:

Equity Method

An accounting technique used by a company to record its investment in another company, where the investment's value is adjusted in accordance with the investee's performance.

Partial Equity Method

An accounting method used for investments, where the investor recognizes its share of the investee's earnings, but adjustments are less comprehensive than under the full equity method.

Initial Value Method

A technique in accounting where an investment is recorded based on its initial purchase cost, maintaining this value without considering subsequent adjustments unless a permanent decline occurs.

Single-Line Consolidation

A method of accounting in which an investor records the value of its investment in a subsidiary at cost plus any changes due to the investor's share in the subsidiary's income or loss, displayed in a single line in financial statements.