| Gross Profit |
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| corporate finance | |
| generally accepted accounting principles | |
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Gross profit or '''sales profit''' or '''gross operating profit''' is the difference between Revenue and the cost of making a product or providing a service, before deducting Overhead s, Payroll , Taxation , and Interest payments. In general, it is the Profit shown on a Transaction if one disregards the Indirect Cost s. It is the revenue that remains once one deducts the costs that arise only from the generation of that revenue. For a Retail er, gross profit is the shop takings less the cost of the goods sold. For a Manufacturer , the direct costs are the costs of the Material s and other consumables used to make the product. For example, the cost of electricity to operate a machine is often a Direct Cost while the cost of lighting the machine room is an overhead. Payroll costs may also be direct if the Workforce is paid a unit cost per manufactured item. For this reason, Service Industries that sell their services by time units often treat the fee-earners' time cost as a direct cost. Gross profit is an important guide to Profitability but many Small Business es fail because they overlook the regular demand to meet the Fixed Cost s of the business. The indirect costs are considered when calculating Net Income , another important guide to profitability. SEE ALSO
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