Multiple Choice
Which of the following items is included in the calculation of net sales on an income statement?
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4. Merchandising Operations
Net Sales
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Which of the following is the correct formula to calculate total profit?
A
Net Sales + Cost of Goods Sold
B
Net Sales - Cost of Goods Sold - Operating Expenses
C
Net Sales - Operating Expenses
D
Net Sales + Operating Expenses - Cost of Goods Sold
Verified step by step guidance1
Understand the concept of 'Total Profit': Total profit is the amount remaining after deducting all expenses related to the business operations from the revenue generated (Net Sales).
Identify the components involved: Net Sales represents the revenue generated from selling goods or services. Cost of Goods Sold (COGS) refers to the direct costs incurred in producing goods or services. Operating Expenses include indirect costs such as rent, utilities, and salaries.
Recall the formula for Total Profit: Total Profit = Net Sales - Cost of Goods Sold - Operating Expenses. This formula accounts for all expenses deducted from revenue to arrive at the profit figure.
Analyze the options provided: Compare each option to the correct formula for Total Profit. Ensure that all necessary components (Net Sales, COGS, and Operating Expenses) are included and correctly positioned in the formula.
Select the correct formula: Based on the analysis, the correct formula is 'Net Sales - Cost of Goods Sold - Operating Expenses,' as it accurately calculates Total Profit by deducting all relevant expenses from Net Sales.
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