Question

Bill owns a company (Bill’s Gates) that manufactures fence panels. Bill’s Gates had a net profit margin last quarter of 18%. Which of the following actions will not help Bill increase his net profit margin this year, assuming he sells the same number of fence panels?
a.
Increase the price per panel.
b.
Use cheaper lumber to construct panels.
c.
Offer panels in a “buy one get one free” special.
d.
Reduce workforce and labor costs to construct panels.

Answer 1

Answer: c.

Explanation: Net profit margin = net profit ÷ sales. With the same number of panels sold:
- (a) Raising price increases revenue per panel → higher margin.
- (b) Cheaper lumber lowers COGS → higher profit → higher margin.
- (d) Cutting labor reduces costs → higher profit → higher margin.
- (c) A "buy one get one free" deal cuts the revenue received per panel (you'd receive payment for only half the panels if you still move the same total number), lowering net profit and thus net profit margin.