If gross profit is calculated as sales minus COGS and COGS increases while sales stay the same, what happens to gross profit?

If gross profit is calculated as sales minus COGS and COGS increases while sales stay the same, what happens to gross profit?

• A. Increases
• B. Decreases
• C. Remains unchanged
• D. Becomes negative

Answer: (B)

Gross profit is what remains from sales after you subtract the cost of goods sold. When sales stay the same and COGS rises, you’re subtracting a larger number from the same revenue, so the difference—the gross profit—gets smaller. For example, if sales are 100 and COGS is 60, gross profit is 40; if COGS increases to 70 while sales stay at 100, gross profit drops to 30. If COGS rises high enough above sales, gross profit could become negative, but with the given scenario, the immediate effect is that gross profit decreases.

Gross profit is what remains from sales after you subtract the cost of goods sold. When sales stay the same and COGS rises, you’re subtracting a larger number from the same revenue, so the difference—the gross profit—gets smaller. For example, if sales are 100 and COGS is 60, gross profit is 40; if COGS increases to 70 while sales stay at 100, gross profit drops to 30. If COGS rises high enough above sales, gross profit could become negative, but with the given scenario, the immediate effect is that gross profit decreases.