Answer :
Final answer:
Gross margin equals sales minus COGS. This fundamental business metric reflects the profitability of a company's core activities by showing the excess of revenues over direct production costs, before taxes and other expenses are considered. So, the correct answer is option a) sales minus COGS.
Explanation:
Gross margin equals sales minus COGS (Cost of Goods Sold). It represents the difference between the revenue that a company earns from selling its products and the cost of producing those products. In accounting, this is a common way to measure a company's profitability on its core activities, before taking into account other financial aspects like taxes, interest, or overhead costs. Gross margin can provide insights into the company's production efficiency and pricing strategy.
According to accounting principles, gross profit or accounting profit is the excess of revenues over out-of-pocket expenses - which essentially is what newspapers mean when they report a corporation's 'profits' for a given time period. An important component of this equation is COGS, which includes all direct costs associated with the production of goods sold by the company. This would cover materials and direct labor costs.
When calculating Gross Domestic Product (GDP), taxes less subsidies on production and imports are added to the total factor income to get from factor cost to market prices, this conceptually parallels the gross margin's exclusion of taxes to focus on core profitability.
