Certified Compensation Professional (CCP) 2025 Practice Exam – Comprehensive All-in-One Guide for Mastering Accounting & Finance in HR

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What is the formula for calculating Gross Margin (Gross Profit)?

Net Sales + Cost of Goods Sold

Gross Sales - Net Sales

Net Sales - Cost of Goods Sold

The formula for calculating Gross Margin, or Gross Profit, is derived from the difference between Net Sales and Cost of Goods Sold. Gross Profit represents the amount of money that a company retains from sales after deducting the costs associated with producing the goods it sells.

When using this formula, Net Sales refers to the total revenue from sales minus returns, allowances, and discounts. Cost of Goods Sold (COGS) includes all direct costs tied to the production of the products sold by the company. By subtracting COGS from Net Sales, you arrive at Gross Profit, which reflects the efficiency of a company in managing its production costs relative to its sales revenue.

This understanding highlights the significance of Gross Margin as a key indicator of a company's financial health and operational efficiency, providing insights into how well the company controls its inventory and production expenses.

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Cost of Goods Sold + Gross Sales

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