Question

g The following information is from​ Megabux, Inc.'s annual report for the years ended December​ 31: 2012 2011 2010 Sales ​$120,000 ​$110,000 ​$100,000 Cost of goods sold ​58,000 ​52,000 ​46,000 Operating expenses ​48,000 ​44,000 ​42,000 Interest expense ​12,000 ​9,000 ​6,000 Net income ​$ ​ 2,000 ​$ ​ 5,000 ​$ ​ 6,000 Refer to the Megabux annual report above. Which of the following describes the trend in the profit margin ratio for the three−year ​period? A. There is no significant change in the ratio over the three years. B. The ratio is getting worse because expenses are growing faster than sales. C. The ratio is getting worse because Megabux has increased its selling prices. D. The increase in sales each year is more than enough to cover the increase in expenses.

Answer 1

Answer:

B. The ratio is getting worse because expenses are growing faster than sales.

Explanation:

OPERATING EXPENSES-COST TABLE

                                 2012       2011         2010

Operating exp       48,000    44,000     42,000

Interest expense    12,000     9,000       6,000

TOTAL                     60,000   53,000    48,000

As can be clearly seen above that operating expenses having been increasing at a very high speed as compared to sales volumes and gross profits hence, leading to a fall in overall profitability.