Price adjustments and discounts impact margins and collections

Steps:

• Gross profit margin rises with higher selling prices, as revenue increases relative to cost of goods sold.
• Trade receivables turnover falls with slower collections or more credit sales, increasing average receivables.
• Raising prices directly boosts margin without affecting costs.
• Offering more cash discounts encourages prompt payment but, if uptake is low, extends effective credit periods, slowing turnover.

Why C is correct:

• Raised selling price increases gross profit margin per the formula (Sales - COGS)/Sales; more cash discounts, if not fully taken, prolong receivables, decreasing turnover ratio (Credit Sales / Avg. Receivables).

Why the others are wrong:

• A: Passing savings lowers prices, reducing margin.
• B: More discounts cut margin; cash payments shrink receivables, raising turnover.
• D: Reduced prices decrease margin despite higher sales volume.

Final answer: C