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Determining gross profit

During the current year, merchandise is sold for $23,680,000. The cost of the goods sold is $13,024,000.

a. What is the amount of the gross profit?
fill in the blank 1 of 2$

b. Compute the gross profit percentage (gross profit divided by sales).
fill in the blank 2 of 2
%

c. Will the income statement always report an operating income?

Answer 1

To determine the gross profit and the gross profit percentage, we can use the following formulas:

a. **Gross Profit Calculation:**

\[
\text{Gross Profit} = \text{Sales} - \text{Cost of Goods Sold}
\]

Given:
- Sales = $23,680,000
- Cost of Goods Sold = $13,024,000

Now, we can calculate the gross profit:

\[
\text{Gross Profit} = 23,680,000 - 13,024,000 = 10,656,000
\]

So, the amount of gross profit is:

**Fill in the blank 1 of 2:** **$10,656,000**

b. **Gross Profit Percentage Calculation:**

\[
\text{Gross Profit Percentage} = \left( \frac{\text{Gross Profit}}{\text{Sales}} \right) \times 100
\]

Now, substituting the values:

\[
\text{Gross Profit Percentage} = \left( \frac{10,656,000}{23,680,000} \right) \times 100 \approx 44.98\%
\]

So the gross profit percentage is approximately:

**Fill in the blank 2 of 2:** **44.98%**

c. **Operating Income on the Income Statement:**

The income statement does not always report an operating income. Operating income is calculated after subtracting operating expenses (like selling, general, and administrative expenses) from gross profit. If the operating expenses exceed the gross profit, then the operating income could be negative, resulting in no operating income being reported. Therefore, it is possible for a company to have zero or negative operating income, depending on its expenses and revenues.

So, to answer the question:

**No, the income statement will not always report an operating income.**