Practice prompt · Q:statement-presentation-comprehensive-income-and-disclosure/practice-comparability

Compare gross margins consistently

Adjust a gross margin comparison for a change in cost classification.

Updated Sep 13, 2026 Review due Dec 13, 2026

Practice

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In 2025, a service company placed $80 thousand of technician pay in operating expenses. In 2026, it placed $80 thousand of the same kind of direct service cost in cost of revenue. Assume both years include all other amounts on the same basis. What should a reader do before treating a change in gross margin as a change in service profitability?

Choose the best answer. a Compare the reported gross margins directly because both statements use the same subtotal name. b Identify the classification change and compare gross margins on a consistent cost basis. c Ignore the classification change because it has no effect on net income. d Treat the lower 2026 gross margin as proof that technician pay increased.

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Answer: b

First identify which costs enter each year’s cost of revenue. The $80 thousand classification move changes gross profit and gross margin but, by itself, not operating income.