With reference to Table 1, analyse the causes of the changes in the profit
margins for Rockall Ltd for 2019 and 2020.
Gross profit margins increased
Operating profit margins decreased
Knowledge & Understanding
The gross profit margin measures the proportion of revenue remaining after
deducting the cost of goods sold (COGS), while the operating profit margin
accounts for the firm’s profitability after operating expenses, such as rent and
wages, have been deducted.
Application
From 2019 to 2020, the gross profit margins for Rockall Ltd increased from 75%
to 80% and the operating profit decreased from 45% to 38%. One reason why
the gross profit margins increased is due to the several new retailers being able
to sell it’s products and also more opportunities to negotiate for discounts. One
reason why operating profit margins decreased is due to doubling the size of the
rented office space. This increased rent expenses which therefore explains the
decrease in the gross profit margin. Another reason why the operating profit
margins decreased is due to the additional layer of management.
Analysis
This increases gross profit margin because they’re able to reduce costs be
negotiating and introduction of lean production. This is when firms try to
produce with as little wastage as possible. This will increase gross profit margins
because it will reduce the costs of goods sold as there is less wastage. This is
because new workers must employed to fill this new layer of management which
increases wage costs. This highlights the challenge Rockall faces in balancing
their revenue growth with cost control.
Rockall plans to increase investment in just one of its new product ranges.
Advise Rockall whether to increase investment in its sports shoe range or its
jewellery range.
Justify your answer.
Demand
1. Advise (Choose)
2. Sports Shoe vs Jewellery
3. Format – Intro, Why sports shoe, Why Jewellery and then Why I feel it
should be THIS (SS vs JEW)
4. Because, therefore, It depends, However, Hence, Most importantly, As we
can see……
Intro – why do they want to invest
1. More Revenue Stream
2. Existing business could be facing more competition
3. Customer – take advantage of knowing those customer
4. Growth also allows them to manage resources better
Why Sports shoe
1. Market is growing
2. Their sales are growing and are double of Jewellery
3. Issue – many competitors
4. Low advertising budget for rockall
Why Jewellery
1. Low level of competition
2. Lower gross profit
JUDGEMENT
Which one is best for long term
Jewellery, why – easy to compete – goes well with their approach of good
value, advertising budget. Short and Long
Use sentence starters like As we can see, as is evident, because, however,
due to, hence, therefore, resulting in, long term, short term, it depends on etc
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