14 November 2011
Prepare the note for fall in gross profit very wisely.
1. Sale Price : If there is a fall in selling price, then give certain instances of the same citing the main products and the fall in selling price. give its impact on the sales.
2. Material Cost : If there is an increase in material cost (followed by no or less corresponding increase in selling price) you can cite the examples of the main raw materials used in the production and give the corresponding material prices. Give the impact of such increase in material prices on Gross profit.
3. Other abnormal material losses : If you have incurred other abnormal material losses, say a failed production run then show it by way of a note.
4. Introduction of new product line with lesser margin can be a reason. Cite the factuals for such.
5. It may be possible that you may have lost some/all market for a product with higher GP margin. Cite the factuals with impact for such products.
6. Any other costs considered for calculating Gross profit - give the impact of increase in such costs on gross profit.
Finally prepare a reconciliation that had these unusual varinaces not occurred, then your GP would have been more or less same compared to last year. Carry documentary evidences and management reports in support of the above claims/statemenmts made.
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