How is gross profit calculated?

Gross profit is an important metric that measures the efficiency of a company in producing its goods. It is calculated by subtracting the cost of goods sold (COGS) from total sales revenue. This calculation focuses specifically on the costs directly associated with the production of goods that are sold, providing insight into how well a company is managing its production costs relative to its sales.

Understanding gross profit helps businesses evaluate their production and pricing strategies, as it reflects the immediate profitability of core operations without taking into account other expenses like administrative costs, marketing expenses, or taxes. By isolating COGS, gross profit offers a clear picture of how much money is retained after accounting for the costs directly tied to the production of the products that were sold.

In this context, the other options do not accurately reflect the calculation of gross profit. Total expenses include all costs, not just those related to goods sold, while operating expenses do not encompass the complete cost structure either since they pertain to expenses incurred in the day-to-day functioning of the business but do not factor in the cost of production directly. Furthermore, adding expenses or margins does not fit the standard formula for calculating gross profit, which is strictly a subtraction of COGS from sales revenue. Thus, the calculation provided