Operating Expenses Deducted from Gross Profit

Steps:

• Gross profit equals net sales minus cost of goods sold.
• Subtract operating expenses (administrative, selling, distribution) from gross profit to reach operating profit.
• Deduct non-operating expenses (e.g., interest) if applicable to get profit before tax.
• Profit for the year is after tax, but deductions focus on expenses below gross profit line.

Why D is correct:

• Items 2 and 4 represent operating expenses (e.g., administrative salaries and selling costs), deducted from gross profit per the income statement formula: Net Profit = Gross Profit - Operating Expenses - Other Expenses.

Why the others are wrong:

• A includes items 1 and 3 (e.g., cost of goods sold already subtracted and non-deductible dividends).
• B includes item 1 (cost of goods sold, part of gross profit calculation, not deducted after).
• C omits item 4 (selling expenses, a key operating deduction).

Final answer: D