P&G Peak Assessment Practice Test

If revenue is 900,000, cost of goods sold is 600,000, and operating expenses are 150,000, what is pre-tax profit?

450,000 0 300,000 150,000

Correct Answer:

150,000

Explanation:

The main idea is to subtract all costs that impact profitability from revenue to get earnings before tax. Start with revenue, remove the cost of goods sold to get gross profit, then subtract operating expenses to arrive at pre-tax profit. 900,000 minus 600,000 equals 300,000 (gross profit). Subtract 150,000 in operating expenses to get 150,000 pre-tax profit. This is what remains before taxes are deducted. Taxes aren’t included in this figure, so the pre-tax profit is 150,000.

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