Question 6.KC.5: To improve Biscayne’s profit margin, what action would you s...
To improve Biscayne’s profit margin, what action would you suggest?
a. Increase sales.
b. Cut expenses.
c. Downsize.
d. None of the above would likely fix the problem.
a. Incorrect. This is not correct because sales growth has occurred and the lack of sales does not seem to be a problem. Increasing sales will only fix financial problems caused by the lack of sales.
b. Correct. Biscayne’s profit margin has dropped from 6 percent to –6 percent. The industry average is four percent. This is clearly a problem. When sales are increasing (they increased from $65,258 to $100,294), a profit margin problem can be fixed by increasing prices or cutting costs. It is doubtful that in an industry that is as competitive as the apparel industry that a price increase would work. Cutting costs would be the best solution.
c. Incorrect. Downsizing would work only when sales are decreasing. In this case, sales are increasing.
d. Incorrect. Cutting costs would likely fix the problem. Therefore, neither of the above cannot be a solution.