Which of the following best describes how to determine the profit on the sale of an inventory product?

• A. Divide net sales by the cost of goods sold.
• B. Subtract the cost of goods sold from net sales.
• C. Multiply net sales by the cost of goods sold.
• D. Add the cost of goods sold to net sales.

Answer: (B)

Verified step by step guidance

1. Understand the concept of profit: Profit on the sale of an inventory product is the financial gain achieved after deducting the cost of goods sold (COGS) from the revenue generated (net sales).
2. Identify the formula for calculating profit: Profit = Net Sales - Cost of Goods Sold. This formula represents the difference between the revenue earned from selling inventory and the expenses incurred to produce or purchase that inventory.
3. Clarify the components: Net Sales refers to the total revenue from sales after deducting any returns, allowances, or discounts. Cost of Goods Sold (COGS) includes all direct costs associated with producing or purchasing the inventory sold during the period.
4. Avoid common misconceptions: Dividing, multiplying, or adding net sales and COGS does not provide the correct calculation for profit. Subtraction is the correct operation to determine the profit.
5. Apply the formula: To determine the profit, subtract the cost of goods sold from the net sales. This calculation provides the financial result of selling inventory products.