Multiple Choice
Given the following information for XYZ Company: Net Sales = \$500,000, Cost of Goods Sold = \$350,000, calculate the gross margin ratio.
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4. Merchandising Operations
Net Sales
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Adams Corporation evaluates divisional managers based on net sales. Which of the following best describes 'net sales' as used in this context?
A
Total sales revenue minus operating expenses
B
Total sales revenue minus cost of goods sold
C
Total sales revenue before any deductions
D
Total sales revenue minus sales returns, allowances, and discounts
Verified step by step guidance1
Understand the concept of 'net sales': Net sales represent the actual revenue generated from sales after accounting for any reductions such as sales returns, allowances, and discounts.
Identify the components of net sales: Net sales are calculated by subtracting sales returns, allowances, and discounts from total sales revenue.
Clarify why other options are incorrect: Net sales do not involve deductions for operating expenses or cost of goods sold, as these are separate financial metrics used for evaluating profitability.
Relate the definition to divisional manager evaluation: Divisional managers are evaluated based on net sales because it reflects the true revenue generated by their division, excluding adjustments for returns, allowances, and discounts.
Summarize the correct answer: The correct description of net sales in this context is 'Total sales revenue minus sales returns, allowances, and discounts,' as it provides a clear and accurate measure of sales performance.
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