Gross Margin Influencing Factors
Gross
margins are an important ratio for evaluating the performance of the
organization. An increase in gross profit margin ration is regarded as good
performance, while a decrease in such ratio is regarded as bad performance.
Gross margin influencing factor includes sales price and cost of sales, or
both.
1. Sale price
Gross
margin first influencing factor is selling price. Gross margin factor will
fluctuate with the fluctuation of sales price (keeping the cost of sales
constant). It means an increase in sales price would increase the gross margin;
similarly a decrease in price would adversely affect the gross margin.
2. Cost of Product
Gross
margin second influencing factor is cost of product or sales. If we decrease
the cost of sales, it would improve the gross margin (keeping the sale price
constant). Similarly a decrease in increase in cost of product would lower the
gross margin.
3. Sales & Cost of Sales
Gross
margin can be effect by both at the same time, so we can study both influencing
factor at same time. Practical both of these factors are required to be student
at the same time.
