Report Writing 2013 FP Exam 2 question 1.10

dizzyhorse

This is probably very simple but I'm confused and slightly confused by answer.

I think the wording to the question is confusing:

Why is the gp margin of Bold less than double that of Diz when the gp per unit is more than doubled? Should the gp margin also be more than double that of Diz?

Why is this?

Nps

Think of 2 items with sales prices of £10 and £1000. The gross profit per unit of the £10 item is £9 and the gross profit of the £1000 item is £10. Clearly there is more profit per sale of the £1000 item, but if you look at the percentage gross profit, the £10 item is far more profitable (90% vs 1%). Gross profit is absolute (ie seen in isolation) but GP % is relative so seen in relation to the sales and cost of sales needed to earn it. The 2 figures can give very different pictures.

dizzyhorse

Thanks for your help!