How can you calculate gross profit?

Gross profit is calculated as the difference between the revenue generated from sales and the cost of goods sold (COGS). By using the selling price of the products and subtracting the costs associated with producing or purchasing those products, you arrive at gross profit.

In the context of this calculation, the selling price refers to the total amount received from the sale of goods, while costs include any direct expenses involved in making those goods available for sale. The equation correctly reflects the core concept of gross profit as a measure of efficiency for a business in terms of generating profit from its sales activities after covering the direct costs tied to those products.

This understanding is critical for businesses to assess their profitability and make informed financial decisions. Other options do not correctly define gross profit: some reference taxes or expenses that do not factor into gross profit calculations directly, focusing instead on net income or other financial metrics.