Last Updated 08 May 2020

Gross profit

Category Essay Examples 
Essay type Research
Words 237 (1 page)
Views 118

Gross profit means a firm’s revenue minus its cost of goods sold. The cost of goods sold consists of the fixed and variable product costs, but it excludes all of the selling and administrative expenses.

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. It is a financial metric used to access a firm’s financial health by revealing the amount of money left over from revenues after accounting for the cost of goods sold.

When analyzing a company, gross profit is so important because it directly indicates how efficiently management uses labor and supplies in the production process. Gross profit margin is gross profit as a percentage of revenue. Gross profit margin=(Revenue – COGS)/ Revenue. This metric can be used to compare a company with its competitors. More efficient companies will usually see higher profit margins. Contribution margin is a cost accounting concept that allows a company to determine the profitability of individual products.

It is calculated as: (Product Revenue – Product Variable costs) Thus, the contribution margin includes two parts- the fixed cost and the net profit. Contribution Margin Ratio=(Product Revenue – Product Variable costs)/ Product Revenue Contribution Margin Ratio is used to determine the range of products to be produced by the company

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Gross profit. (2018, Apr 17). Retrieved from

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