After declining in 20Y2, all of Revolutionary Designs profit margins recovered to some extent in 20Y3. How sustainable are 20Y3s margins and why?

a) Revolutionary Designs narrow gross profit margin makes sustaining its operating, pretax, and net profit margins very challenging. b) Despite a substantial increase in its 20Y3 gross margin, none of the other margins was able to keep pace. Until the company can better control these costs, it is questionable whether it can sustain even 20Y3s margins. c) Although the companys operating profit margin improved by only a fraction of the growth in gross margin, the steady decline of income tax and other expenses as a percentage of sales suggests the company should be able to sustain its 20Y3 margins. d) The substantial improvement in Revolutionary Designs gross margin should enable it to comfortably sustain its 20Y3 profit margins.

(Note: option d) was wrong, which was posted on Chegg Study earlier)

Revolutionary Designs, Inc. Income Statements (in $000s) Years Ended December 31: 20Y3 20Y2 20Y1 $ $ $ Sales Cost of goods sold Gross profit 8,010 6,328 1,682 7,506 6,377 1,129 6,515 5,473 1,042 Selling, general and administrative expenses Depreciation expense Interest expense Loss on disposition of fixed assets Other expense Net income before taxes 1,315 26 84 27 22 208 858 24 78 0 4 165 706 18 54 0 0 264 Provision for income taxes 100 79 130 Net income $ 108 $ 86 $ 134