DECA Sports and Entertainment Marketing Practice Exam

What represents gross profit in financial terms?

1. Sales total

2. Revenue minus the cost of goods sold

3. Estimated total income

4. Sales less operational costs

The correct answer is: Revenue minus the cost of goods sold

Gross profit is an essential financial metric that indicates the profitability of a company’s core business activities, specifically its ability to generate revenue from sales while controlling the cost of production. It is calculated by subtracting the cost of goods sold (COGS) from total revenue. When evaluating the components of gross profit, the focus is specifically on revenue, which reflects the total sales generated by a company, and the cost associated with producing the goods that were sold. Therefore, the correct representation of gross profit is clearly articulated as revenue minus the cost of goods sold. In contrast, the other options don't accurately define gross profit. The total sales amount represents overall sales without considering costs, while estimated total income refers to projected earnings that may include various expenses and don't focus solely on core business operations. Lastly, sales less operational costs incorporates not only the COGS but also other expenses like marketing and administrative costs, which are not relevant when calculating gross profit. Thus, the option describing gross profit accurately captures the essence of this crucial financial measure.