NASAA Series 65, Uniform Investment Adviser Law ExaminationEconomic Factors and Business InformationMedium
A company reports its financial results for the quarter. Its revenue was $1,000,000, cost of goods sold was $400,000, and operating expenses were $300,000. What is the company's gross profit?
- A$700,000
- B$600,000
- C$400,000
- D$300,000
Show answer & explanationAnswer & explanation
Correct answer: B. $600,000
Gross profit is calculated as Revenue minus the Cost of Goods Sold (COGS). In this case, $1,000,000 - $400,000 = $600,000. Operating expenses are deducted later to calculate operating income.
Why the other options are wrong
- A. This is Revenue minus Operating Expenses, not gross profit.
- C. This is the cost of goods sold, not gross profit.
- D. This is the operating income (Gross Profit - Operating Expenses).
Gross Profit
The profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.
- Found on the income statement.
- Calculated as Revenue - Cost of Goods Sold (COGS).
- Indicates the profitability of a company's core operations before other expenses.
Memory trick: It's a journey from sales to net earnings, step-by-step.