Multiple Choice
Which of the following is a measure of how well a business generates cash flow?
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4. Merchandising Operations
Net Sales
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Erica wants to buy Marco’s used iPod. He is asking her to pay him $100 for it. The $100 represents the iPod’s:
A
Net sales
B
Sales price
C
Cost of goods sold
D
Gross profit
Verified step by step guidance1
Understand the terms provided in the problem: Net sales, Sales price, Cost of goods sold, and Gross profit. Each term has a specific meaning in Financial Accounting.
Define 'Sales price': This is the amount at which a product or service is sold to a customer. In this case, Marco is asking Erica to pay $100 for the iPod, which represents the sales price.
Clarify 'Net sales': This refers to the total revenue from sales after deducting returns, allowances, and discounts. It is not applicable here since the problem does not mention any adjustments to the $100.
Explain 'Cost of goods sold (COGS)': This is the direct cost of producing or purchasing the goods sold by a business. Since Marco is selling a used iPod, COGS is not relevant in this context.
Discuss 'Gross profit': This is calculated as Sales price minus Cost of goods sold. Since the problem does not involve calculating profit or costs, this term is not applicable here. The $100 directly represents the sales price.
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