Which of the following is used to compute Gross Profit?

Gross Profit is calculated by taking the total Sales revenue and subtracting the Cost of Goods Sold (COGS). This formula helps businesses determine how much money they are making from their core activities before accounting for other expenses such as operating expenses, taxes, and interest. By focusing on sales and the direct costs associated with producing the goods sold, Gross Profit provides crucial insight into the company’s profitability from its primary operations.

The formula reflects the relationship between sales and direct costs, allowing decision-makers to analyze efficiency and pricing strategies. Thus, the correct approach to compute Gross Profit is to subtract COGS from Sales, aligning perfectly with the answer selected. Understanding this calculation is essential, as it forms the basis for evaluating a company's operational effectiveness and financial health.