How is Gross Profit calculated?

Gross Profit is calculated by subtracting Cost of Goods Sold (COGS) from Sales Revenue. This method reflects the profit a business makes after accounting for the direct costs associated with producing goods or services sold, which includes the costs of materials and labor directly tied to the production process. By focusing on the relationship between sales and production costs, Gross Profit provides insight into the efficiency of the core business activities before overhead expenses, taxes, and other indirect costs are considered.

This calculation is vital for businesses as it helps to determine how efficiently they are producing and selling their products. A higher Gross Profit indicates a healthier margin, which can lead to a stronger overall financial performance. The other options do not represent the correct calculation of Gross Profit. For instance, subtracting total expenses from sales revenue considers all costs and not just the direct costs related to goods sold, while the other choices involve components that do not pertain directly to the calculation of Gross Profit.