Answered: Explain how a business can earn a…

Business

Accounting

Explain how a business can earn a positive gross profit on its sales and still have a net loss.

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter21: Variable Costing For Management analysis

Section: Chapter Questions

Problem 9DQ: Explain why rewarding sales personnel on the basis of total sales might not be in the best interests...

See similar textbooks

Related questions

Q: The margin of safety can be defined as the amount by which sales can decrease before losses are…

A: Total sales of a company can be divided into Margin of safety sales and break even sales.

Q: Observe the net income for both companies. Which company is more profitable? Which company is more…

A: Solution:- Observation of net income for both companies as follows under:- Company 2010 2009 2008…

Q: Maximizing profits means to ______. a. create a balance between seeking economic profits and seeking…

A: Answer Option C is correct - Increase the difference between what is given up for input and what is…

Q: Do you think the Friedman's statement that the " sole purpose of business is to make profits" is…

A: Answer: According to me "Sole Purpose of Business is to make profits" is not valid. A Business uses…

Q: why most of the companies used gross profit method?

A: Gross method is used to evaluate the inventory at year end.

Q: How much was the profit of the company

A: Profits of the company for Year 2020 = Accumulated losses of year 2020 - Accumulated losses of year…

Q: Pick two companies in the same industry.a. Determine their DOL, DFL, and DCL.b. What effect does a…

A: Let's take company X and company Y and the income statement of both the companies are given below:

Q: The break-even point is the sales level at which a company neither earns a profit nor incurs a loss…

A: The break even sales units are calculated as fixed cost divided by contribution margin per unit.

Q: Show with a formula that describes the average estimatesustainable sales growth. Then, make a clear…

A: Sustainable growth means Growth for the future customers such as petroleum industries advertise…

Q: Total Present value minus the total cost incurred for the business operation is a part of a. Profit…

A: Wealth maximization is a concept stating the shareholder's wealth or a person's wealth. The wealth…

Q: profit margin,

A: In simple words, profit margin refers to the amount of profit that a company makes on its sales. If…

Q: Comparison: 1. Observe the trend of revenues for both companies. Which company has higher revenue?…

A: The question is related to analysis of Financial Statements of two companies from 2007 to 2010 based…

Q: Explain how a company can be “profit rich, yet cash poor.”

A: Corporation: A corporation is a form of business entity that is incorporated through the state…

Q: T F If a firm’s sales revenues exceed its expenses,the firm has earned a profit

A: The net income is the net profit of the company earned during the period. The net income includes…

Q: Why do you think companies use revenue recognition as a primary means for inflating profits?

A: Revenue Recognition: Revenue recognition is the recording of revenues in the books of the company…

Q: Please select the option that best analyzes the PROFIT MARGIN for our example company. The profit…

A: Profit margin is the percentage of sales, which explains how much profit a firm can earn for…

Q: Can a business earn a gross profit but incur a net loss? Explain.

A: Gross Profit: Gross profit represents the revenue after the deduction of cost of goods sold from the…

Q: The assumptions on which cost-volume-profit analysis is based appear to be most valid for…

A: Cost volume profit analysis in the business shows relationship between costs, number of units and…

Q: Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason for…

A: Gross profit is given by sales revenue minus cost of goods sold. Gross profit =Sales revenue- cost…

Q: Gross profit is a measure of the overall profitability of a company. True False

A: Gross profit is a form of profitability measure in business. It is calculated by deducting cost of…

Q: Profit maximization objective helps to: a. Increase the liquidity position of the business b. Reduce…

A: Two types of maximization Wealth maximization and profit maximization

Q: Which of the following statements is likely to be true, for a company making profits? Select one:…

A: All the transactions of the company that are happened during the year will be recorded first in the…

Q: The margin of safety is the amount that sales can drop before the company incurs a loss True False

A: Margin of safety = Actual sales - Break-even sales

Q: In these days Banks have new competitors from many industries; they all have one thing in common,…

A: The term banks is very wide scope . Banks are those institutes which deposits the money of customers…

Q: (a) Explain one reason why gross profit margin of Firm-B is lower than that of Firm-A. (b) Suggest…

A: Gross profit margin = gross profit/sales = (sales - cost of goods sold)/sales Net profit margin =…

Q: Profitability is a measure of an organization's profit relative to its expenses. Organizations that…

A: Profitability is one of the performance measurement factors. It shows the overall performance of the…

Q: when a client notices a discrepancy between annual profits calculated by the accountant versus your…

A: 1. Accountant’s Cash-based Profit: The accounting method in which the revenue is the amount of cash…

Q: Profitability earning is a real barometer to measure the Select one: O a. Sales of business firm O…

A: Profitability earning is a key parameter of assessing the management of the organization and is an…

Q: Increasing earnings quality could be indicated bya. an improving operating earnings/sales ratio.b. a…

A: Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities,…

Q: The method of comparators can be applied using the ratio of operating income to revenue as a basis…

A: Operating Income is an accounting number that measures the amount of operating profit for a company…

Q: Compute the total profit or loss for the company.

A: Total profit for the company is the profit which has been added together from all the separate…

Q: Explain how the sales mix can affect the profitability of a company.

A: The sales mix is a calculation that determines the proportion of each producta business sells…

Q: Can a business earn a gross profit but incur a net loss?

A: Gross Profit is computed by deducting cost of goods sold from the sales revenue of the business. And…

Q: Observe the net income for both companies. Which company is more profitable? Which company is more…

A: Net income is defined as gross profit minus any other expenses and costs, as well as any other…

Q: A business that is below the operating break-even point:

A: The operating break even point for a business is the point at which sales revenue covers all of the…

Q: Which of the following ratios would NOT be considered to be a measure of a business economic…

A: The economic performance of a business can be measured by its ability to generate profits.…

Q: Examine the key reasons why a business may not want to hold too much or too little working capital.…

A: The key reasons why a business wants to hold efficient working capital is discussed below:…

Q: Why is the profit maximization supposed not the most important goal of the company?

A: Solution Profit maximization is a process business firms undergo to ensure the best output and price…

Q: What does the firm need to do to raise its ROE? Calculate the profit margin ratio of the company and…

A: A financial ratio is the ratio of various numbers in the balance sheet or balance sheet and income…

Q: What is earnings management? Illustrate your answer with examples of Balance Sheet items that…

A: Financial reporting assists the intended users of financial statements, such as shareholders,…

Q: Where can I find the net profit after tax of a company? I am looking at a balance sheet and I do not…

A: Net profit after tax is to be found on income statement. It is the profit after deducting the tax…

Q: What is the calculation for 'Profit Margin' for the firm in that picture?

A: Information Provided: 2015 net profit = 39,878 2015 Revenue = 100,000 2016 net profit = 11,527…

Q: The profitability and financial position of a firm can be judged to be improving, or det competitors…

A: In business there is need of comparing with other similar companies so that better valuation can be…

Q: Profit maximization pupose cannot be an ideal basis for making business decision because of…

A: Profit maximization cannot be an ideal basis for making business decision because It focuses only on…

Question

Explain how a business can earn a positive gross profit
on its sales and still have a net loss.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Explain how is it possible for a business to earn a gross profit but still incur a net loss.
Profitability is a measure of an organization's profit relative to its expenses. Organizations that are more efficient will realize more profit as a percentage of its expenses than a lessefficient organization, which must spend more to generate the same profit. Profit is the amount your business gains. It is a number that remains when you subtract expenses from your revenue. Profitability measures your business's profits and helps you determine your success or failure. In other words profitability is its ability to make a profit. Changes were made in operating methods in an effort to increase profitability. In these days Banks have new competitors from many industries; they all have one thing in common, the effort to earn more profit. Innovation is very important parts of today´s business as a banker discuss your views and what can be done to make the bank financially sound, discuss the steps you can take to increase the profitability of the bank.
Profitability is a measure of an organization's profit relative to its expenses. Organizations that are more efficient will realize more profit as a percentage of its expenses than a lessefficient organization, which must spend more to generate the same profit. Profit is the amount your business gains.It is a number that remains when you subtract expenses from your revenue. Profitability measures your business's profits and helps you determine your success or failure. In other words profitability is its ability to make a profit. Changes were made in operating methods in an effort to increase profitability.In these days Banks have new competitors from many industries; they all have one thing in common, the effort to earn more profit. Innovation is very important parts of today´s business as a banker discuss your views and what can be done to make the bank financially sound, discuss the steps you can take to increase the profitability of the bank.
Why do you believe businesses rely heavily on revenue recognition to inflate profits?
a.What are the drivers to the cost of revenue and the trends? b. Are there any trends in sales and marketing expenses or research and development? Are these amounts reasonable for the type of business? c. Compare general and administrative expenses . Are they reasonable? d. What is the ratio of net interest income (expense) to income from operations? Is this a safe ratio for the company? Why or why not?
If the company have higher profit margin, what will happen? Is it a good sign for the company to proceed with their business?
Can a business earn a gross profit but incur a net loss?
For example, how does understanding profit and loss impact your perspective on operating a company?
Using Positive Accounting Theory (PAT), describe the 'efficiency' and 'opportunistic' perspective' with respect to companies paying bonus to their employees.
Why are the customer perspective measures important when a company is doing financially well?
Why do you think companies use revenue recognition as a primary means for inflating profits?
Profit maximization objective helps to: a. Increase the liquidity position of the business b. Reduce the risk of the business c. Reduce the investments of the business d. Increase the reserve of the business