Your Firm's Sales Are Estimated to Increase by 10% in the Next

question 69

Multiple Choice

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.

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Definitions:

Expected Useful Life

The estimated length of time a fixed asset will be used in normal operations.

Placed in Service

Refers to the point in time when an asset begins to be used by a business for its intended purpose, marking the start of depreciation.

Asset

Items of value owned by a company, including tangible and intangible resources, that can be converted into cash.

Second-Year Depreciation

The depreciation expense allocated in the second year of an asset's useful life, considering the chosen depreciation method.