Certified Supply Chain Professional (CSCP) Practice Exam

What is typically included in the calculation of gross profit?

1. Operating expenses

2. Cost of goods sold

3. Current liabilities

4. Accounts receivable

The correct answer is: Cost of goods sold

The calculation of gross profit focuses on the revenue generated from sales after deducting the direct costs associated with producing those goods, which is known as the cost of goods sold (COGS). Gross profit highlights the efficiency of a company's core activities, providing insight into how well it can manage its production and sales processes. Cost of goods sold includes all the direct costs that can be attributed to the production of goods sold during a specific period, such as materials and labor directly involved in manufacturing. By subtracting COGS from total revenue, gross profit reveals the financial impact of production efficiency and pricing strategies before accounting for operating expenses, taxes, and other more indirect costs. Including operating expenses, current liabilities, or accounts receivable in the calculation is not appropriate for gross profit, as those items relate to broader financial metrics rather than the direct relationship between sales and production costs. Thus, the acknowledgment of COGS in the gross profit calculation is essential for evaluating a company's financial performance at its core operational level.