What may have contributed to the change in the expense ratio?
(A) Increase in cash
(B) Increase in purchases
(C) Decrease in drawings
(D) Decrease in interest rates - HSC - SSCE Business Studies - Question 14 - 2007 - Paper 1
Question 14
What may have contributed to the change in the expense ratio?
(A) Increase in cash
(B) Increase in purchases
(C) Decrease in drawings
(D) Decrease in interest ra... show full transcript
Worked Solution & Example Answer:What may have contributed to the change in the expense ratio?
(A) Increase in cash
(B) Increase in purchases
(C) Decrease in drawings
(D) Decrease in interest rates - HSC - SSCE Business Studies - Question 14 - 2007 - Paper 1
Step 1
Increase in cash
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Answer
An increase in cash may not have a direct impact on the expense ratio, as it primarily reflects the efficiency of managing expenses relative to revenues.
Step 2
Increase in purchases
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Answer
An increase in purchases typically indicates higher expenses. This can significantly affect the expense ratio, likely leading to an increase as expenses rise without a corresponding increase in revenue.
Step 3
Decrease in drawings
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Answer
A decrease in drawings suggests that fewer withdrawals are made by the owner, potentially leading to higher retained earnings and positively impacting the expense ratio.
Step 4
Decrease in interest rates
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Answer
A decrease in interest rates may lower financing costs, which can reduce overall expenses, thereby potentially improving the expense ratio.
