NASAA Series 65, Uniform Investment Adviser Law ExaminationEconomic Factors and Business InformationEasy
A company reports its financial results for the year. Its total sales revenue was $2,500,000, and its Cost of Goods Sold (COGS) was $1,200,000. Operating expenses amounted to $600,000. What is the company's Gross Profit?
- A$700,000
- B$1,900,000
- C$1,300,000
- D$2,500,000
Show answer & explanationAnswer & explanation
Correct answer: C. $1,300,000
Gross Profit is calculated by subtracting the Cost of Goods Sold (COGS) from total sales revenue. Operating expenses are used to calculate operating income, not gross profit. $2,500,000 (Revenue) - $1,200,000 (COGS) = $1,300,000.
Why the other options are wrong
- A. This would be the operating income ($1,300,000 Gross Profit - $600,000 Operating Expenses).
- B. This is an incorrect calculation, possibly adding COGS instead of subtracting.
- D. This is the total sales revenue, not the gross profit.
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.
- Calculated as Revenue - Cost of Goods Sold (COGS).
- Appears on the income statement.
- Represents the financial health of core operations before other expenses.
Memory trick: Gross Profit: 'G'etting 'R'evenue, 'O'ut 'S'old 'S'tuff.