Gross Margin Declines” (Wall Street Journal, September 10, 2015.) Questions 1.Ho

Question

Gross Margin Declines” (Wall Street Journal, September 10, 2015.)

Questions

1.How is gross margin (also known as gross profit) calculated?

2.If sales increase, what would you ordinarily expect to happen to gross margin?

3.Examine the statements of operations for Lululemon as given in the article. Is the Wall Street Journal headline referring to dollars or percentages?

4.What do you know about expenses at Lululemon during 2015 based on the Wall Street Journal headline?

5.What possible reasons might there be for this situation to have occurred at Lululemon?

Explanation / Answer

1. Gross margin is calculated sales minus cost of goods sold

2.With increase in sales gross margin would also increase

3.The journal refers to the decine in gross margin ratio. The absolute margin has increased but as a percentage it has decreased.

4. Based on the journal the expenses have increased from 31% to 32.60%

5. Inflation, increase in price of inputs can be the major cause

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