NASAA Series 65, Uniform Investment Adviser Law ExaminationEconomic Factors and Business InformationEasy
A company reports sales revenue of $1,500,000 and its cost of goods sold (COGS) is $800,000. Operating expenses, including salaries and rent, amount to $300,000. What is the company's gross profit?
- A$700,000
- B$1,200,000
- C$1,500,000
- D$400,000
Show answer & explanationAnswer & explanation
Correct answer: A. $700,000
Gross profit is calculated by subtracting the cost of goods sold (COGS) from sales revenue. $1,500,000 (Sales Revenue) - $800,000 (COGS) = $700,000.
Why the other options are wrong
- B. This is incorrect; it's sales revenue minus operating expenses, not COGS.
- C. This is the total sales revenue, not the gross profit.
- D. This would be the net income if operating expenses were also subtracted, but the question asks for gross profit.
Gross Profit
Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.
- Sales Revenue - Cost of Goods Sold (COGS)
- Appears on the income statement
- Represents profitability before operating expenses
Memory trick: Revenue Minus Cost Equals Gross Gain.