The earnings a business makes per item sold is referred to as which of the following?

The earnings a business makes per item sold is referred to as which of the following?

• A. Contra asset
• B. Cost of goods sold (COGS)
• C. Depreciation
• D. Gross profit margin

Answer: (D)

Focus on what survives after the direct cost of making the item is subtracted from the sale price. That surviving amount is the gross profit, and when you relate it to the sale price, you get the gross profit margin. In other words, gross profit margin shows how much of each sale is left as profit after covering the cost of the goods, expressed as a percentage of revenue. It’s calculated as (selling price minus COGS per item) divided by selling price, or equivalently gross profit divided by revenue. The other terms don’t fit as well: a contra asset is simply an account that offsets another asset, not earnings; cost of goods sold is the direct cost subtracted to find gross profit, not the earnings metric itself; depreciation is a non-cash expense allocated over time.

Focus on what survives after the direct cost of making the item is subtracted from the sale price. That surviving amount is the gross profit, and when you relate it to the sale price, you get the gross profit margin. In other words, gross profit margin shows how much of each sale is left as profit after covering the cost of the goods, expressed as a percentage of revenue. It’s calculated as (selling price minus COGS per item) divided by selling price, or equivalently gross profit divided by revenue.

The other terms don’t fit as well: a contra asset is simply an account that offsets another asset, not earnings; cost of goods sold is the direct cost subtracted to find gross profit, not the earnings metric itself; depreciation is a non-cash expense allocated over time.