What is the formula used to calculate gross profit?

The formula to calculate gross profit is based on the fundamental relationship between revenue and costs directly associated with producing goods or providing services. Gross profit is specifically defined as the difference between sales revenue and the cost of goods sold (COGS). In this context, when you consider selling price, it refers to the revenue generated from selling goods minus the direct costs involved in bringing those goods to market.

The correct choice involving selling price and cost directly aligns with the basic concept of gross profit, as it captures how much money is made from sales after deducting the costs linked primarily to production or procurement. Thus, gross profit reflects the efficiency of a company in generating profit from its sales activities before taking other expenses, taxes, or financing costs into account.

While other options may relate to different financial metrics (like net profit or overall profit calculations), they do not capture the specific nature of gross profit, which focuses exclusively on the relationship between revenue from sales and the cost incurred in acquiring or creating the products sold.