How is gross profit calculated?

Gross profit is calculated by taking the total sales revenue and subtracting the cost of goods sold (COGS). This calculation provides insight into the core profitability of a company's operations, particularly how well it is managing its production costs relative to the income generated from sales. By focusing on sales revenue and COGS, gross profit emphasizes the efficiency of the company's production and sales processes without considering other operational expenses or taxes.

For a clearer understanding, it’s important to note that the other options do not accurately reflect the formula for gross profit. Options that suggest subtracting or adding inventory figures do not pertain to the direct relationship between sales revenue and COGS, which are the key components needed to determine gross profit. Similarly, net income and expenses are related to overall profitability at a different level, which includes all costs and revenues beyond just the manufacturing and sales aspects, thus moving away from the concept of gross profit.