Cushman Company had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses. Gross profit equals:

a. $770,000.
b. $115,000
c. $390,000
d. $402,000
e. $408,000

c. $ 390,000

Explanation:

The gross profit is computed as follows:

Sales                                                             $ 800,000

Less: Sales discounts                                  $   (12,000)

Less: Sales return and allowances             $ ( 18,000)

Net sales                                                                                       $ 770,000                                    

Less: Cost of goods sold                                                             $ (380,000)

Gross Profit                                                                                   $ 390,000  

Gross profit is the profit of the entity after considering the net revenue and reducing the cost of goods sold therefrom. To get the net revenue/sales any discounts allowed or sales returns are adjusted.

The operating expenses are not considered as these are considered for net income purposes.