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Sales are $300,000 and cost of goods sold is $140,000. What does the $160,000 difference represent?
AThe net income after operating expenses
BThe markup on the manufactured goods
CThe total of all period expenses
DThe cost of goods manufactured
Answer & Solution
Correct answer: B. The markup on the manufactured goods
1. Sales and cost of goods sold sit on the first two rows of the income statement.
2. Their difference is gross profit, which is the markup earned on the manufactured goods.
3. Net income comes later, after selling and administrative expenses are deducted from gross profit.
4. So $160,000 is the markup on the goods sold.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 1.3.1 Financial Reporting for a Manufacturer_
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