Entrepreneurship Module 8: Gross Profit Computation

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Questions and Answers

What does a gross profit rate of 21.39% indicate about XYZ Trading's sales margin?

The sales are generating a profit margin of 21.39%. (correct)

The company is operating at a loss.

The company's cost ratio to sales is 100%.

The company has no operating expenses.

If XYZ Trading's gross profit was P 157,000.00 and operating expenses were P 90,000.00, what is the operating profit margin?

P 67,000.00 (correct)

P 157,000.00

P 47,000.00

P 90,000.00

Why is assessing the gross profit rate important for an entrepreneur?

It helps determine if the gross profit can cover operating expenses. (correct)

It is used to evaluate employee performance.

It provides insights into future market trends.

It indicates the total sales in a year.

Based on the information, what is the cost ratio to sales for XYZ Trading?

78.61% Signup and view all the answers

What are operating expenses considered in relation to the income statement?

Period costs that are expensed in the current period. Signup and view all the answers

How is the operating profit margin related to net income if there are no financing charges?

They represent the same amount. Signup and view all the answers

What happens if a product has a very high cost in relation to its sales price?

It will not be competitive in the market. Signup and view all the answers

If XYZ Trading's gross profit was P 157,000.00, what would be the gross profit rate if total sales were P 734,000.00?

21.39% Signup and view all the answers

What is the correct formula for calculating gross profit?

Net Sales - Cost of Sales Signup and view all the answers

If XYZ Co. had net sales of P734,000.00 and a cost of sales of P577,000.00, what was the gross profit?

P157,000.00 Signup and view all the answers

Which of the following expenses would NOT be included when determining gross profit?

Net Sales Signup and view all the answers

What factors can help improve overall sales and thereby increase gross profit?

Increasing the number of customers Signup and view all the answers

Which option correctly defines gross profit?

Net Sales minus Cost of Sales Signup and view all the answers

In assessing the profitability of a business, what information is most relevant?

Gross profit and net sales Signup and view all the answers

Which statement is false regarding the gross profit rate?

It is calculated by dividing net sales by cost of goods sold. Signup and view all the answers

Which of the following is a correct interpretation of gross profit?

It reflects the profitability before business expenses. Signup and view all the answers

How is the gross profit rate of a business calculated?

Dividing the cost of goods sold by net sales Signup and view all the answers

What does the operating profit margin rate indicate?

The percentage of operating expenses to net sales Signup and view all the answers

What is one objective of evaluating the gross profit rate?

To determine if gross profit can cover operating expenses Signup and view all the answers

Which statement about the government and financial statements is correct?

The government is not interested in financial statements Signup and view all the answers

Which of the following best describes the net profit margin rate?

It measures the percentage of total sales that is retained as profit Signup and view all the answers

What is the implication of having high inventory in a business?

It is typically favorable for business operations Signup and view all the answers

What role does an accountant play in financial statements?

An accountant prepares and presents financial statements Signup and view all the answers

What does the amount of income per peso investment represent?

Net profit margin rate Signup and view all the answers

Study Notes

Entrepreneurship Module 8: Computation of Gross Profit

This module covers the computation of gross profit
Profit is the financial gain from a transaction or business activity.
Profit is calculated as revenue minus expenses.
Gross profit is total revenue minus cost of goods sold.
Gross profit rate is gross profit divided by net sales.
This rate indicates the percentage of profit a business realizes from the sale of a product.
Operating profit margin rate is the gross profit less operating expenses
Net profit margin rate is operating profit margin less expenses such as interest and income taxes.
Financial statements are important for the business to understand its success.
Profitability ratios are important to determine the profitability of a business.
Gross profit shows revenue after the cost of goods sold.
Operating expenses are deducted to determine operating profit
Profit can be determined from sales, costs, commissions, discounts, and fixed/operating expenses.
Profit margins can be used to evaluate and improve upon selling prices, product costs, and overall revenue.
Future entrepreneurs should understand profitability ratios and how to improve a business.
Creativity in business is essential for adaptation to the market.
A businesses profitability is important for determining its sustainability and potential for growth, as well as other factors.

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Description

This module focuses on the computation of gross profit, key to understanding a business's financial health. Learn how gross profit is derived from revenue and the importance of various profit margins in assessing profitability. The quiz emphasizes important financial statements and profitability ratios.