During the current year, merchandise is sold for $2,450,000. The cost of the merchandise sold is $1,519,000

During the current year, merchandise is sold for $2,450,000. The cost of the merchandise sold is $1,519,000.

a. What is the amount of the gross profit?
b. Compute the gross profit percentage (gross profit divided by sales).
c. Will the income statement necessarily report a net income? Explain.


Answer:
a. $931,000 ($2,450,000 – $1,519,000)
b. 38% ($931,000 ÷ $2,450,000)
c. No. If operating expenses are less than gross profit, there will be a net income. On the other hand, if operating expenses exceed gross profit, there will be a net loss.





From the choices presented in parentheses, choose the appropriate term for completing each of the following sentences:

a. Feedback is often used to (improve, direct) operations.

b. The implementation of automatic, robotic factory equipment normally (increases, decreases) the direct labor component of product costs.

c. Advertising costs are usually viewed as (period, product) costs.

d. The balance sheet of a manufacturer would include an account for (cost of goods sold, work in process inventory).

e. Factory overhead costs combined with direct labor costs are called (prime, conversion) costs.

f. Payments of cash or the commitment to pay cash in the future for the purpose of generating revenues are (costs, expenses).

g. A product, sales territory, department, or activity to which costs are traced is called a (direct cost, cost object).


Answer:
a. improve
b. decreases
c. period
d. work in process inventory
e. conversion
f. costs
g. cost object