What is the formula for determining gross profit?

What is the formula for determining gross profit?

• A. Gross profit = Income ÷ Cost of goods
• B. Gross profit = Income - Cost of goods
• C. Gross profit = Income - Cost of goods sold
• D. Gross profit = Income - Taxes

Answer: (B)

Gross profit shows how much money remains from sales after covering the direct costs tied to producing the goods that were sold. It is calculated by subtracting the cost of those goods from the income (revenue). So the formula is income minus the cost of goods sold. Here, cost of goods is the direct expense of producing or acquiring the goods that were sold, and subtracting it from income reveals the gross profit. For example, if income is 120,000 and the cost of goods sold is 70,000, gross profit is 50,000. This measure focuses on production efficiency and how much revenue is left to cover operating expenses and profit. The other formulations either mix in taxes, or use a division (which would yield a ratio), or subtract a broader cost that isn’t tied directly to the sold goods.

Gross profit shows how much money remains from sales after covering the direct costs tied to producing the goods that were sold. It is calculated by subtracting the cost of those goods from the income (revenue). So the formula is income minus the cost of goods sold. Here, cost of goods is the direct expense of producing or acquiring the goods that were sold, and subtracting it from income reveals the gross profit.

For example, if income is 120,000 and the cost of goods sold is 70,000, gross profit is 50,000. This measure focuses on production efficiency and how much revenue is left to cover operating expenses and profit. The other formulations either mix in taxes, or use a division (which would yield a ratio), or subtract a broader cost that isn’t tied directly to the sold goods.