Multiple Choice
If a company has net sales of $50 and the cost of goods sold is $35, what is the gross profit?
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4. Merchandising Operations
Net Sales
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Which of the following terms refers to the difference between revenue and cost of goods sold?
A
Net Sales
B
Operating Income
C
Gross Profit
D
Net Income
Verified step by step guidance1
Understand the concept of Gross Profit: Gross Profit is the financial metric that represents the difference between revenue (sales) and the cost of goods sold (COGS). It is a measure of profitability before accounting for operating expenses, taxes, and other costs.
Review the formula for Gross Profit: The formula is Gross Profit = Revenue - Cost of Goods Sold. This calculation helps determine how efficiently a company is producing and selling its goods.
Differentiate Gross Profit from other terms: Net Sales refers to total revenue after deducting returns, allowances, and discounts. Operating Income is the profit after deducting operating expenses from Gross Profit. Net Income is the final profit after all expenses, taxes, and interest are deducted.
Apply the definition to the question: The term that refers to the difference between revenue and cost of goods sold is Gross Profit, as it directly matches the formula and definition provided.
Reinforce understanding: Gross Profit is a key indicator of a company's core profitability and is often used to assess the efficiency of production and sales processes.
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