Question 1

Gross margin is net sales minus cost of goods sold.

Accepted Answer

This statement is true. Gross margin is calculated by subtracting the cost of goods sold from net sales.

Question 2

One of the advantages to using gross profit for analysis is that the resulting values should be similar across industries and therefore,provide a means of comparison

Accepted Answer

Gross profit margins can vary significantly across different industries due to factors such as the nature of the goods or services provided, production costs, and pricing strategies, making it difficult to use gross profit as a basis for comparison across industries.

Question 3

Which of the following is an activity common to the operations of merchandising,manufacturing,and service companies?

Accepted Answer

Incurring operating expenses is a common activity across merchandising, manufacturing, and service companies. All types of companies incur costs related to operations, such as rent, utilities, salaries, and marketing expenses, regardless of their industry or the nature of their products or services.

Question 4

When a customer returns a defective product for credit,the seller would record the transaction using the Purchase Returns and Allowances account.

Accepted Answer

The seller would record the transaction using the Sales Returns and Allowances account, not the Purchase Returns and Allowances account, which is used by the buyer.

Question 5

A buyer bought inventory for $3000 and pays $500 for shipping.The terms of the purchase is 2/10 n/30.If the buyer pays for the purchase within the discount period,the amount of the discount is $70.

Accepted Answer

The answer of A buyer bought inventory for $3000 and...

Question 6

When using the perpetual inventory system,all inventory transactions are recorded to the Inventory account so to maintain an up-to-date balance.

Accepted Answer

This is true. The perpetual inventory system requires continuous tracking of inventory levels, and all inventory transactions are recorded in the Inventory account to ensure that the balance remains accurate and up-to-date.

Question 7

Intel makes microchips from raw materials acquired from suppliers.Intel is a:

Accepted Answer

Intel is a manufacturer because it produces microchips from raw materials.

Question 8

A buyer using a perpetual inventory system uses an account named Purchases Returns and Allowances to record any goods returns to a supplier.

Accepted Answer

In a perpetual inventory system, returns to a supplier are recorded by crediting the Inventory account directly, not through a Purchases Returns and Allowances account, which is used in a periodic inventory system.

Question 9

A store holding a "25% off" sale will probably hope that the lower gross profit percentage will be offset by higher sales.

Accepted Answer

The store hopes that the sale will attract more customers and increase sales volume, thus making up for the lower profit margin per item sold.

Question 10

The gross profit percentage is computed by dividing operating income by net sales.

Accepted Answer

The gross profit percentage is computed by dividing gross profit by net sales.

Question 11

Although gross profit percentages vary greatly across industries,they are fairly consistent across firms in the same industry.

Accepted Answer

The answer of Although gross profit percentages vary greatly across...

Question 12

A rising gross profit percentage indicates management's inability to control production and inventory costs.

Accepted Answer

A rising gross profit percentage indicates that the company is generating more revenue per sale and can be a positive sign of growth and profitability. It does not necessarily indicate an inability to control production and inventory costs.

Question 13

Which of the following is an activity in the operations of a manufacturer,but not in the operations of a merchandising or service company?

Accepted Answer

Buying raw materials is a necessary activity in the operations of a manufacturer because they need to acquire materials to produce their goods. This is not necessary in the operations of a merchandising or service company as they do not produce their own goods. Selling goods to consumers or other firms and receiving cash are activities common to all types of companies.

Question 14

BetterBuy purchases computers from companies like Hewlett Packard and IBM and sells them to consumers.BetterBuy is a:

Accepted Answer

BetterBuy purchases computers from manufacturers and resells them directly to consumers, making them a merchandising company at the retail level. They do not provide any additional services on top of the sale of the products.

Question 15

In a perpetual inventory system,when a company purchases merchandise the journal entry includes a debit to Inventory.

Accepted Answer

In a perpetual inventory system, the inventory account is continuously updated, and when a company purchases merchandise, it increases the inventory balance, so the journal entry includes a debit to the inventory account.

Question 16

The terms "sales discounts" and "purchase discounts" are used interchangeably by a company.

Accepted Answer

Sales discounts are offered by a company to its customers as an incentive to make prompt payments, while purchase discounts are offered by a company's suppliers as an incentive to make prompt payments. These terms cannot be used interchangeably.

Question 17

It is possible for a company to increase both its gross profit percentage and net income without increasing the dollar amount of sales.

Accepted Answer

This is possible if the company is able to reduce its cost of goods sold (COGS) or other expenses, which would increase its gross profit percentage and net income without increasing sales.

Question 18

A company sells $10,000 of goods.The gross profit percentage is 32%.Net income would be $3,200.

Accepted Answer

Gross profit percentage applies to sales, not net income. A 32% gross profit on $10,000 of sales equals $3,200 gross profit, not net income. Net income would also account for other expenses beyond cost of goods sold.

Question 19

If the terms of an inventory purchase is FOB destination,ownership transfers to the buyer at the shipping point so the buyer pays for the transportation cost.

Accepted Answer

If the terms of an inventory purchase is FOB destination, ownership transfers to the buyer at the destination, not the shipping point. Therefore, the seller pays for the transportation cost.

Question 20

Using a contra-revenue account for sales returns and allowances instead of directly reducing the sales account allows a retailer the following advantage:

Accepted Answer

Using a contra-revenue account for sales returns and allowances allows a retailer to track the value of goods returned separately from the sales account, providing better insight into the reasons for returns and identifying potential problem areas. This also allows for more accurate reporting of net sales, which is an important metric for evaluating the overall financial health of a company.

Quiz 6: Merchandising Operations and the Multi-Step Income Statement