Question

In its 2016 annual report, Caterpillar Inc. reported the following (in millions): 2016 2015 Sales $38,537 $47,011 Cost of goods sold 28,309 33,546 As a percentage of sales, did Caterpillar's gross profit increase or decrease during 2016? Select one: A. Gross profit increased from 26.8% to 28.6% B. Gross profit decreased from 28.6% to 26.5% C. Gross profit increased from 71.4% to 73.2% D. Gross profit decreased from 73.2% to 71.4% E. There is not enough information to answer the question.

Answer 1

Answer:

B. Gross profit decreased from 28.6% to 26.5%

Explanation:

As for the provided information, we have

Particulars                    Year 2016             Year 2015

Sales                              $38,537                $47,011

Cost of goods sold        $28,309               $33,546

Gross Profit                   $10,228                 $13,465

Gross profit as a percentage of sales shall be:

Year 2016 = $\frac{10,228}{38,537} \times 100 = 28.54$

Year 2015 = $\frac{13,465}{47,011} \times 100 = 28.64$

As the percentage is higher of 2015 by 0.1%

The statement B which states that the gross profit has reduced is correct.