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

Which of the following best describes the result of 'sales revenue minus variable expenses'?

Operating income

Gross profit

Net sales

Contribution margin

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Verified step by step guidance

Understand the concept of 'Contribution Margin': Contribution margin is the amount remaining after deducting variable expenses from sales revenue. It represents the portion of sales revenue available to cover fixed expenses and contribute to profit.

Identify the components involved: Sales revenue refers to the total income generated from selling goods or services. Variable expenses are costs that change directly with the level of production or sales, such as raw materials and direct labor.

Perform the calculation: To find the contribution margin, subtract the total variable expenses from the total sales revenue. The formula is:

Contribution Margin = Sales Revenue - Variable Expenses

Understand the significance: Contribution margin is a key metric in cost-volume-profit analysis. It helps businesses determine how much revenue is available to cover fixed costs and generate profit.

Differentiate from other terms: Contribution margin is distinct from operating income, gross profit, and net sales. Operating income includes fixed expenses, gross profit includes cost of goods sold, and net sales accounts for deductions like returns and allowances.