Can you elaborate on the total profit margin for the chewing gum example? I'm not sure I understand how the total profit margin is decreasing from the given data. Shouldn't it stay the same?
"Therefore, total profit margins have decreased while sales have increased."
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Help us help you! Please point us to exactly where you mean.
I think you're referring to section 4, where they give you the formula
Profits (aggregate) can go UP, while profit margins (efficiency) goes down.
If costs increase faster than sales, the profit margin will go down.
So even though you're earning more because you're also spending more, the profit percentage as a whole is going down.
Hope that clarifies it!
Best,
Cristian
Hey, I added an image to the original question. I'm calculating profit margin over the years and it seems to be constant.
Hey, I added an image to the original question. I'm calculating the profit margin over the years. And it seems to be constant. From the text: “Analyzes show that the product whose sales have increased (flavored chewing gum) is also the one with lower margins due to the added flavor. Therefore, total profit margins have decreased while sales have increased.” I think there is an explanation missing in the text because it's confusing. Was it meant that we added another product line (flavored chewing gum) to our product mix and now the total profit margin is lower? Meaning that the idea was to compare before/after adding flavored chewing gum instead of calculating the profit margin over years?
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Yes that's right! Separate products with separate margins :)
Yup, thanks! :)