If Local Co. had an increase in selling expenses of $300,000 , how would that affect each of its margins?

A. Selling expenses only affect the operating margin, but the increase in such expenses will not affect the other margins.

B. Selling expenses only affect the gross margin, but the increase in such expenses will not affect the other margins.

C. Selling expenses only affect the net profit margin, but the increase in such expenses will not affect the other margins.

D. Selling expenses do not affect the gross margin, but the increase in such expenses will decrease the other margins.

D. Selling expenses do not affect the gross margin, but the increase in such expenses will decrease the other margins.

Explanation:

As Selling expenses are charged after gross Income or profit. So, it will not effect the gross income / profit. Other margin are calculated after adjusting the selling expenses, so that will be effected. Operating Margin and Net profit margin are both effected by change in the selling expenses.

Following is the Format of income statement

Sales

Less: Cost of Sales

Gross income / Profit

Less: Operating expenses

Admin Expenses

Selling Expenses

Other Expense

Operating Income / Profit

Less: Interest expense

Less: Tax

Net Income / Profit