Multiple Choice
Which of the following best describes the result of 'sales revenue minus variable expenses'?
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4. Merchandising Operations
Net Sales
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A net loss will result during a time period when:
A
net sales are equal to cost of goods sold
B
gross profit is greater than operating expenses
C
total expenses exceed total revenues
D
total revenues exceed total expenses
Verified step by step guidance1
Understand the concept of net loss: A net loss occurs when total expenses exceed total revenues during a specific time period. This means the business is spending more than it is earning.
Analyze the options provided: Evaluate each statement to determine which one aligns with the definition of net loss. For example, 'net sales are equal to cost of goods sold' would result in zero gross profit, but it does not necessarily indicate a net loss.
Focus on the relationship between gross profit and operating expenses: If gross profit is greater than operating expenses, the business may still have a net income, not a net loss. This option does not describe a net loss scenario.
Evaluate the statement 'total revenues exceed total expenses': This describes a net income situation, not a net loss. Therefore, this option is incorrect.
Identify the correct answer: The statement 'total expenses exceed total revenues' directly aligns with the definition of net loss. This is the correct answer based on the concept of net loss.
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