Several Adjustments Must Be Made to Net Domestic Product at Factor

question 38

Essay

Several adjustments must be made to net domestic product at factor cost in order to calculate GDP. One of these adjustments is adding depreciation. What is depreciation and why must it be added?

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Definitions:

Gross Profit

Net sales less cost of goods sold.

Future Revenue

Income that a company expects to receive from its normal business activities in future periods.

Gross Profit

The difference between sales revenue and the cost of goods sold (COGS), indicating the basic profitability of a company's core business operations.

Operating Expenses

Operating expenses are the costs associated with the day-to-day operations of a business, excluding direct production costs, such as rent, utilities, and payroll.