How is profit calculated?

Profit is calculated as the total revenue from sales minus the costs directly associated with producing those sales, which is known as the cost of goods sold (COGS). This reflects the gross profit, which is an important measure of a company's efficiency in managing its production costs relative to its sales.

When calculating profit in this way, it focuses specifically on the costs that are tied directly to the production of goods sold, excluding other expenses such as operating expenses, taxes, and interest, which are accounted for later when calculating net profit.

In contrast, other options do not accurately represent the calculation of profit: for instance, total expenses would include a range of costs beyond just the direct costs of goods sold, which would lower the profit figure. Similarly, adding net income or combining sales figures in less pertinent ways does not yield a proper calculation of profit. The correct understanding of profit computation is fundamental in both analyzing company performance and making informed business decisions.