Why do better decisions regarding the purchasing and managing of goods for sale frequently cause dramatic percentage increases in net income? Please explain in detail.
Understanding one specific logic is very important to understand this question.
That is, Net income = Sales – Cost of goods sold-Operating and non-operating expenses.
Here, cost of gods sold includes purchases and therefore if purchases are reduced with excellent negotiating skills, cost of goods sold reduced. Consequently, net income would increase. In the same way, when other expenses are reduced with effective production and implementing cost control in other matters will reduce the operating and non-operating expenses. As a result, Net income would increase in a percentage.