A company has an Operating Profit Ratio of 30%. To maintain this ratio at 35%, What should management do?

Both 1 and 2

Increase the Selling Price of Stock-in-Trade: Stock-in-trade refers to the inventory or goods that a company holds for the purpose of resale. If management decides to increase the selling price of stock-in-trade, it means they would sell the products at a higher price than before. Assuming the cost of revenue remains constant, by increasing the selling price, the company's revenue per unit sold would increase. If the cost of goods sold (COGS) remains unchanged, the higher revenue will result in a higher gross profit (Revenue - COGS). Since the Operating Profit Ratio is calculated as Operating Profit (Earnings before Interest and Taxes, EBIT) divided by Revenue, the increase in gross profit would directly impact the operating profit. If the cost of other operating expenses remains constant, the operating profit will increase, which can help maintain or achieve the desired 35% Operating Profit Ratio.

Reduce Cost of Revenue from Operations: Alternatively, management can focus on reducing the cost of revenue from operations. This involves finding ways to reduce the cost of goods sold (COGS) or any other direct costs associated with generating revenue. By lowering the COGS, the company's gross profit margin (Gross Profit / Revenue) would increase. Assuming other operating expenses remain the same, this increase in gross profit margin would result in a higher operating profit, thus helping maintain or achieve the 35%.