IB Business Management HL 3.5.2 Improving profitability ratios Question Bank

Explain one strategy that Enjuice could use to increase its gross profit margin.
- Enjuice could increase its gross profit margin by reducing direct costs/cost of goods sold. It could use cheaper raw materials or instead, find cheaper materials for producing the cans or find cheaper suppliers of cans.
- Enjuice can reduce labour costs by reducing the wages / salaries of its labour on the production line, or by increasing automation in the canning process.
- Enjuice could decrease the price of its juices. Sales revenue might increase as the market for juices is very competitive and customers are likely to be very responsive / very price elastic.
- JIT - perhaps Enjuice can use JIT stock management for aluminum / fruit, or any other metals for the canning process to cut cost of holding stock.
- Technically, if the suggestion of the marketing manager is followed, increasing advertising will reduce net profit before interest and tax, but can increase total revenue with positive impact on gross profit.
N.B. Do not accept increase in price given the information in the stimulus.

Do not credit any suggestion to reduce expenses.

Award [1] for a relevant generic explanation and [1] for application.
[2] cannot be awarded if the response lacks either explanation and/or application.
For an identification or a description of a strategy with or without application [1].
For explanation of a strategy with no application [1].
For description of a strategy with application [1].
For explanation of a strategy and application [2].