Multiple Choice
Which of the following equations correctly summarizes how equity can be calculated?
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4. Merchandising Operations
Net Sales
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Which of the following statements is true about the expression representing Cineplex’s total profits in a city?
A
Total profits are calculated as Net Sales minus only Operating Expenses.
B
Total profits are equal to Net Sales plus Cost of Goods Sold.
C
Total profits are calculated as Net Sales minus Cost of Goods Sold and Operating Expenses.
D
Total profits are the same as Net Sales.
Verified step by step guidance1
Understand the concept of 'Total Profits': Total profits represent the amount remaining after all relevant expenses are subtracted from Net Sales. It is a measure of profitability.
Break down the components: Net Sales refers to the revenue generated from sales after deducting returns, allowances, and discounts. Cost of Goods Sold (COGS) represents the direct costs of producing goods or services sold. Operating Expenses include indirect costs such as rent, utilities, and salaries.
Analyze the incorrect options: The first option is incorrect because total profits are not calculated by subtracting only Operating Expenses; COGS must also be subtracted. The second option is incorrect because adding COGS to Net Sales does not represent profits. The fourth option is incorrect because total profits are not the same as Net Sales; expenses must be deducted.
Identify the correct statement: The correct statement is that total profits are calculated as Net Sales minus both Cost of Goods Sold and Operating Expenses. This aligns with the formula for calculating profits: \( \text{Total Profits} = \text{Net Sales} - \text{COGS} - \text{Operating Expenses} \).
Apply this understanding: When solving similar problems, always ensure you account for all relevant expenses (COGS and Operating Expenses) to accurately calculate total profits.
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