Gross Margin Improves via Higher Net Sales or Lower COGS

Steps:

• Recall gross margin formula: (Net Sales - Cost of Goods Sold) / Net Sales.
• Identify factors affecting net sales: discounts reduce it before COGS subtraction.
• Note trade discounts lower invoice price, directly cutting net sales.
• Confirm other options impact expenses below gross margin line.

Why D is correct:

• Reducing trade discount rate increases net sales revenue in the gross margin formula, raising the margin without altering COGS.

Why the others are wrong:

• A: Administrative expenses are operating costs, subtracted after gross margin to reach operating profit.
• B: Depreciation is a non-cash operating expense, not part of COGS or net sales.
• C: Cash discounts are post-sale payment incentives, affecting net profit but not gross margin calculation.

Final answer: D