What is the difference between sales revenue and the direct costs of goods sold called?

What is the difference between sales revenue and the direct costs of goods sold called?

• A. Net profit
• B. Gross profit
• C. Operating profit
• D. Contribution margin

Answer: (B)

The main idea is that gross profit is the amount left after subtracting the direct costs of producing the goods sold from the revenue from sales. Direct costs of goods sold are the costs that can be traced straight to making the products that were sold (like materials and direct labor, plus allocated factory overhead). So revenue minus these direct production costs equals gross profit, which shows how efficiently the business is producing and pricing its goods before other expenses. That’s why this is the best answer: it captures the exact difference between what the business earns from sales and what it costs to produce those sold goods, before selling and admin expenses, interest, or taxes are considered. Net profit would come after all expenses are subtracted; operating profit is after operating expenses; and the contribution margin is a per-unit metric focusing on variable costs, not the overall gap between revenue and COGS. For example, if revenue is 1,000 and COGS is 600, gross profit is 400. Subtracting other operating costs would yield operating or net profit, but the initial difference in question is gross profit.

The main idea is that gross profit is the amount left after subtracting the direct costs of producing the goods sold from the revenue from sales. Direct costs of goods sold are the costs that can be traced straight to making the products that were sold (like materials and direct labor, plus allocated factory overhead). So revenue minus these direct production costs equals gross profit, which shows how efficiently the business is producing and pricing its goods before other expenses.

That’s why this is the best answer: it captures the exact difference between what the business earns from sales and what it costs to produce those sold goods, before selling and admin expenses, interest, or taxes are considered. Net profit would come after all expenses are subtracted; operating profit is after operating expenses; and the contribution margin is a per-unit metric focusing on variable costs, not the overall gap between revenue and COGS. For example, if revenue is 1,000 and COGS is 600, gross profit is 400. Subtracting other operating costs would yield operating or net profit, but the initial difference in question is gross profit.