How is gross profit calculated?

• A. Net Sales minus Cost of Goods Sold
• B. Net Sales minus Operating Expenses
• C. Total Revenue minus Operating Expenses
• D. Net Income minus Taxes

Answer: (A)

Gross profit shows the profitability from selling goods before considering other expenses. It is found by taking net sales and subtracting the cost of goods sold. Net sales account for any returns, allowances, and discounts, so they reflect the actual revenue from sales. Cost of goods sold includes the direct costs tied to producing the goods sold, such as materials and direct labor (and any allocated overhead linked to production). What remains, gross profit, indicates how much is available to cover operating expenses and contribute to profit, before those broader costs are considered. The other options would mix in operating expenses, taxes, or use total revenue, which moves the result to operating income or net income rather than gross profit.