ITPEC IP April 2025 Question 70

Operating profit equals gross profit minus selling, general, and administrative expenses — it measures profit from the company's main operations.

Gross profit is sales minus cost of sales. Deducting the operating expenses needed to sell products and administer the business gives operating profit. Non-operating, extraordinary, and tax items appear at later stages of the income statement.

Answer (a)

Why not others:
- (b) calculates gross profit, not operating profit
- (c) adjusts current profit for extraordinary items to approach profit before tax
- (d) subtracts taxes from profit before tax to obtain net profit

Key rule: Follow the income-statement sequence: sales, gross profit, operating profit, ordinary or current profit, profit before tax, then net profit.

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