Gross profit is the profit that results from the sale of a company’s goods or services minus the costs of goods sold and overheads. We can calculate gross profit by subtracting the cost of goods sold and overhead costs from total revenues.
It is the proportion of gross profit to revenue. If a company sells a product for $50 but pays $30 for materials, the gross profit is 50–30 or 20%. The gross profit is divided into 2 categories: A contribution margin and an average margin.
