Gross margin is calculated as sales minus which item?

Gross margin is calculated as sales minus which item?

• A. Gross Margin
• B. Cost of Goods Sold
• C. Net Profit
• D. Operating Expenses

Answer: (B)

Gross margin shows how much revenue remains after paying the direct costs of producing the goods sold. Those direct costs are the cost of goods sold, which includes materials, direct labor, and the manufacturing overhead tied to production. By subtracting COGS from sales, you arrive at the gross margin, revealing how efficiently production is turning sales into gross profit before other expenses. The other options don’t fit because net profit comes after operating expenses and other costs, and operating expenses aren’t part of the production costs used to compute gross margin. In short, gross margin = sales minus cost of goods sold.

Gross margin shows how much revenue remains after paying the direct costs of producing the goods sold. Those direct costs are the cost of goods sold, which includes materials, direct labor, and the manufacturing overhead tied to production. By subtracting COGS from sales, you arrive at the gross margin, revealing how efficiently production is turning sales into gross profit before other expenses. The other options don’t fit because net profit comes after operating expenses and other costs, and operating expenses aren’t part of the production costs used to compute gross margin. In short, gross margin = sales minus cost of goods sold.