8) Based on the estimate of TravelCo revenues and margins, what is correct to say?
(a) In terms of %, gross margins were the same in Y1 and Y3.
(b) Gross margins decreased 2% basis points between Y1 and Y2, mainly due to lower penetration of Domestic and LongHaul packages.
(c) TravelCo’s total sales are increasing approximately 5% per year on average between Y1 and Y5. However, total gross margins have not changed.
(d) TravelCo reached highest gross margins (in %) in Y1.
Anyone can explain why each one is wrong?
How do you calculate B and D?
Year 1:
- Product A = Revenue = 500 USD / gross margin = 10%
- Product B = Revenue = 250 USD / gross margin = 5%
Profit = 50 + 12.5 / revenue 750 Gross margin= (62.5/750)
Now for year 2: keep the same gross margin for each product but reverse the revenues. Your profits will be product A: 25 and product B: 25 (total = 50)
Your gross margin for the same revenue base will drop because the new ratio is (50/750)
Note, your revenue - cogs = profits