Question

Gross Profit will result if:

(a) operating expenses are less than net income.
(b) sales revenues are greater than operating expenses.
(c) sales revenues are greater than cost of goods sold.
(d) operating expenses are greater than the cost of goods sold.

Answer 1

Gross profit results when sales revenues exceed the cost of goods sold. This indicates that the company sells its products at a price higher than production costs, generating a profit. Option (c) in the question correctly identifies this relationship.

Step-by-step explanation:

Gross profit is a key indicator of a company's financial health and is calculated as the difference between sales revenues and the cost of goods sold (COGS). It measures how efficiently a company uses labor and supplies in the production process. To determine which scenario results in a gross profit, we should look for revenues exceeding the direct costs associated.

Option (c) sales revenues are greater than cost of goods sold is the correct answer. When the sales revenue is greater than the COGS, it means the company is selling its products for more than it costs to produce them, thus generating a gross profit.

None of the other options directly relate to the calculation of gross profit. Option (a) involves net income, which considers operating expenses and other costs and revenues. Options (b) and (d) refer to operating expenses, which are considered when calculating operating profit, not gross profit.