Net profit increases when

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BlackTom AI · Accepted Answer

The question presents a classic concept about net profit behavior. To begin, we should consider what drives net profit = revenue minus costs. 
Option 1: 'Variable costs increase' — If variable costs rise, net profit would typically decrease unless revenue increases proportionally. This option would generally harm profit, not increase it. It is therefore not a correct mechanism for profit growth. 
Option 2: 'Depreciation is ignored' — Depreciation is a non-cash expense that affects reported profit in accrual accounting. If depreciation were ignored, net profit could appear higher, but that ignores standard accounting practice and would misstate profit; in most contexts, depreciation should be considered, so this option is misleading and not a valid explanation for real profit increase. 
Option 3: 'Fixed costs increase' — Increasing fixed costs raises total costs without automatically driving higher revenue, reducing profit margins unless there is a commensurate jump in sales. This would usually reduce net profit, not increase it. 
Option 4: 'Sales increase while costs remain stable' — When sales rise while costs stay the same, the revenue grows while the cost base does not, expanding gross and net profit. This is the cleanest path to higher net profit since the incremental revenue largely contributes to bottom-line profit after covering any variable costs that may scale with sales. 
In summary, the only option that logically leads to an increase in net profit under standard profit equations is the scenario where sales rise while costs stay flat, as it widens the gap between revenue and total costs. The other options describe situations that either reduce profit or misrepresent accounting treatment, making them incorrect explanations for profit growth.

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Net profit increases when

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GBUS*4330*W01 25 Fall GBUS 4330 Final Exam - Requires Respondus LockDown Browser

Net profit increases when

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Log in for full answers

Similar Questions

_____ is the difference between a company’s revenues and all of its expenses.

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GBUS4330W01 25 Fall GBUS 4330 Final Exam - Requires Respondus LockDown Browser