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SSC Financial and Cost Accounting P-1 QUESTION #6090
Question 1

A trader notices that compared to last year, the gross profit margin has gone up but the trade receivables turnover has gone down (it takes longer to collect). Which scenario explains this?

  • He bought in bulk and passed all savings to customers, increasing volume.
  • He offered higher trade discounts and more customers paid in cash.
  • He increased the selling price and offered more cash discounts.✔️
  • He lowered the selling price to boost the total value of sales.
Correct Answer Explanation

Increasing the selling price directly improves the gross profit margin. Offering more cash discounts might seem like it helps, but if the turnover *decreased* (meaning the ratio of Credit Sales/Receivables fell or Days increased), it suggests credit customers are taking longer to pay or the price hike slowed down collections.