Question

Blue Ace Autos Inc. and Ferdova Autos Inc. are two competing automobile companies. While Blue Ace Autos' Cost of goods sold/Revenue is 63.4 percent, the Cost of goods sold/Revenue of Ferdova Autos is 54.2 percent. What do you infer from this financial data?
A. Blue Ace Autos is less efficient than Ferdova Autos in producing goods.
B. Blue Ace Autos has a higher profit margin than Ferdova Autos.
C. Blue Ace Autos and Ferdova Autos have achieved a competitive parity.
D. Blue Ace Autos is able to command a greater price premium for its products than Ferdova Autos.

Answer 1

Answer:

A. Blue Ace Autos is less efficient than Ferdova Autos in producing goods.

Explanation:

The cost/ revenue ratio of Ferdova Autos is lower than that of Blue Ace, this indicates that for Ferdova Autos ,either revenue is higher or cost is lower than that of Blue Autos.

For example, let us imagine that the revenue of both companies is $60 million and th cost of production for Ferdova Autos is $32.52 (0.542 × 60 million ) million and that of the other company is $38.04 million (0.634 × 60).

We can see that Ferdova Autos spends less to generate the same amount of revenue. This means that Ferdova Autos is more efficient in production when compared with blue autos.

I hope my answer helps you