Squeezie owns a retail shop and has recently asked you to prepare his accounts. From his records you are able to prepare the following trading account for the year ended 31 Decembe r 1984 and to compare it with the account for the previous year, prepared by Squeezie himself:

1984 1983 £ £ £ £
Sales 176,000 150,000 Cost of goods sold Opening stock 30,000 10,000 Purchases 142,000 120,000 172,000 130,000 Less: Closing stock 40,000 132,000 30,000 100,000 Gross Profit 44,000 50,000 In explaining the reason for the fall in gross profit, Squeezie informs you that on 1 January 1984 the cost of goods from his suppliers was increased by 20 per cent, but because of competition he could increase his selling prices by only 10 per cent from that date.
Required:

(a) Outline the significance of the 'gross profit percentage' in examining a trading account.

(b) Work out whether the explanation given by Squeezie would fully account for the decrease in the gross profit.

(c) Give four other possible reasons for the decrease in the gross profit.

Transcribed Image Text:

1984 1983 Sales 176,000 150,000 Cost of goods sold Opening stock 30,000 10,000 Purchases 142,000 120,000 172,000 130,000 Less: Closing stock 40,000 132,000 30,000 100,000 Gross Profit 44,000 50,000