Explain the possible causes of the trends in the following data: ...

[LaDunn]

Explain the possible causes of the trends in the following data:
 
   Year 1 Year 2 Year 3
  Gross profit margin 35 31 28
  Operating profit margin 9 11 13
  Net profit margin 4 10 7
 
  What will be an ideal response?

Question 2

An NSF check held by the payee should be carried on the payee's records as
 a. Cash Short and Over.
   b. an account receivable.
   c. an account payable.
   d. part of cash on hand.
   e. a note receivable.

[cadimas]

Answer to Question 1

Gross profit margin is declining significantly. This could be a result of a decrease in prices caused by competition, deflation, or slow-moving goods that have been discounted. Another possibility is that the prices have remained the same, but the cost of goods has increased and the firm has been unable to pass along the increases to customers.

Operating profit margin has increased each year despite the decreasing gross profit margin. The firm has been able to cut operating costs. Hopefully this has been achieved by cutting waste and not by cutting discretionary expenses such as advertising, repairs and maintenance and research and development. Cutting necessary discretionary expenses may negatively impact the firm's sales in future years.

Net profit margin has been volatile. The large increase in Year 2 appears to be the result of a one-time, nonrecurring item. Excluding this item, net profits have increased more than operating profits. This could be a result of decreasing interest expense, decreasing taxes, an increase in interest income or other miscellaneous revenue, or a decrease in miscellaneous expenses.

Answer to Question 2

b