Multiple Choice
Which of the following would produce the largest increase in the contribution margin per unit?
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4. Merchandising Operations
Net Sales
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Which of the following best describes how net sales are calculated on the income statement?
A
Net sales = Gross sales + Cost of goods sold
B
Net sales = Gross sales - Cost of goods sold
C
Net sales = Gross sales + Sales returns and allowances + Sales discounts
D
Net sales = Gross sales - Sales returns and allowances - Sales discounts
Verified step by step guidance1
Understand the concept of net sales: Net sales represent the revenue generated from sales after accounting for deductions such as sales returns, allowances, and discounts.
Identify the components involved: Gross sales refer to the total sales revenue before any deductions. Sales returns and allowances are reductions in revenue due to returned goods or price adjustments. Sales discounts are reductions in revenue due to early payment or promotional discounts.
Recognize the formula for net sales: Net sales are calculated by subtracting sales returns, allowances, and discounts from gross sales. This ensures that the income statement reflects the actual revenue earned.
Express the formula mathematically: Net Sales = Gross Sales - Sales Returns and Allowances - Sales Discounts. This formula accounts for all deductions to arrive at the net sales figure.
Apply the formula to the income statement: When preparing the income statement, use the formula to calculate net sales by deducting the appropriate amounts for returns, allowances, and discounts from gross sales.
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