Define the term 'gross profit margin'.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2020). The mark or mark type is shown in brackets.

1. [1] (a) a profitability ratio that compares gross profit (profit before deduction of overheads)
2. [1] (a) with revenue
3. [2] (a) gross profit margin = Gross Profit / Total Revenue (Sales) × 100
4. [2] (a) Sound definition of two of the factors listed above or the formula above
5. [1] (a) Partial definition of one of the factors listed above
6. [X] (b) Reduce direct costs (e.g., cheaper raw materials, cut labour costs, more capital intensive, outsource production).
7. [X] (b) Reduce overhead costs (e.g., cut rent, management costs, increase organisational efficiency, reduce promotional expenditure).
8. [X] (b) Increase price of product (assuming competition allows and costs are kept the same).
9. [X] (b) Reduce any discounts given.
10. [X] (b) Increase worker productivity.
11. [X] (b) Reduce inventory costs.
12. [X] (b) Focus on products with higher gross profit margin (reduce number of unprofitable products).
13. [X] (b) Reduce turnaround time (time from order to delivery).
14. [X] (b) Process innovation (cut out operation steps).
15. [X] (b) Accept any other valid response.
16. [3] (b) Sound explanation of two ways to improve its profit margin.
17. [2] (b) Sound explanation of one way or partial explanation of two ways to improve its profit margin.
18. [1] (b) Partial explanation of one way or a list of two ways to improve its profit margin.