A low gross profit margin indicates high production costs relative to sales.
Questions & Step-by-step Solutions
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Q
Q: What does a low gross profit margin indicate?
Solution: A low gross profit margin indicates high production costs relative to sales.
Steps: 4
Step 1: Understand what gross profit margin means. It is the difference between sales revenue and the cost of goods sold (COGS), expressed as a percentage of sales revenue.
Step 2: Recognize that a low gross profit margin means that the costs to produce goods are high compared to the sales made from those goods.
Step 3: Realize that high production costs can come from expensive materials, labor, or inefficient processes.
Step 4: Conclude that a low gross profit margin suggests the company is not making enough profit from its sales after covering production costs.
