Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

The variable expense ratio equals variable expenses divided by which of the following?

Operating income

Gross profit

Net sales

Total assets

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Verified step by step guidance

Understand the concept of the variable expense ratio: It is a financial metric that measures the proportion of variable expenses relative to net sales. Variable expenses are costs that change in proportion to sales or production levels.

Identify the formula for the variable expense ratio: The formula is Variable Expense Ratio = Variable Expenses / Net Sales. This formula highlights the relationship between variable costs and the revenue generated from sales.

Clarify why 'Net Sales' is the denominator: Net sales represent the total revenue generated from sales after deducting returns, allowances, and discounts. It is the most relevant base for calculating the proportion of variable expenses because variable costs are directly tied to sales activity.

Eliminate incorrect options: Operating income, gross profit, and total assets are not appropriate denominators for this ratio. Operating income measures profitability, gross profit focuses on revenue minus cost of goods sold, and total assets represent the company's resources, none of which directly relate to variable expenses.

Apply the formula in practice: To calculate the variable expense ratio, divide the total variable expenses by the net sales. Ensure that both values are accurately determined from the financial statements before performing the calculation.