Gross profit is defined as which of the following?

• A. Revenue minus COGS
• B. Revenue minus expenses
• C. Net income
• D. Gross revenue

Answer: (A)

Gross profit shows how much money remains from sales after covering the direct costs of producing the goods sold. It is calculated by subtracting the cost of goods sold from revenue—the direct materials and labor tied to production. This figure focuses on production efficiency and pricing, before taking into account other operating expenses. If you subtract all expenses, including selling, administrative costs, interest, and taxes, you arrive at net income. If you only subtract operating expenses, you get operating income. Gross revenue, on the other hand, is simply total sales with no costs deducted. For example, with revenue of 100 and COGS of 60, gross profit is 40.