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Net sales are $270,500 and cost of goods sold is $112,500. What is gross profit?
A$383,000
B$158,000
C$112,500
D$270,500
Answer & Solution
Correct answer: B. $158,000
1. Gross profit is what a company earns after paying to produce or buy its products but before deducting operating expenses.
2. It is the difference between net sales and cost of goods sold.
3. Net sales are $270,500.
4. Cost of goods sold is $112,500.
5. Subtract: $270,500 minus $112,500 equals $158,000.
6. Adding the two gives $383,000, which would treat production cost as though it earned money.
7. Gross profit matters because it must cover all the firm's other expenses out of what is left.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.5 The Income Statement_
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