Case 3 Income statements
Case 3: Income Statement
Explain the term cost of sales in your own words. Is likely that the balance sheet of this company includes inventory?
The cost of sales refers to the value of the process of production cutting across from the cost of all factors of production and eventually the cost of marketing for the same product. The balance sheet of the company, including the inventory, is expected since the inventory entails the number of current assets in terms of stock.
Gross profit (margin) is a key piece of financial information. Why is it so important?
Gross profit is an important aspect of financial information because it indicates the finical position of a company. Being a combination of the revenue and cost of sales, it displays what the business has been to gain in a particular financial period. It is a metric that can show if a business is progressing in the right direction in terms of profits. Mathematically:
Gross Profit = Revenue – Cost of Goods Available for Sale
For the Company ABC; GP = $ 525,000 – $ 200,000 = $ 325,000
Explain operating expenses? What does the term mean?
The term operating expenses refer to all the expenses that promote the production activities of the business, but not related to the production cost. Despite not being a part of the production expenses, the operating expenses are important in the setting of the price per unit of a product.
Does ABC Company have any employees? Explain.
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