CPIM Practice Exam

Which term reflects the amount that remains after the costs of goods sold are deducted from revenue?

1. Net Profit

2. Gross Margin

3. Operating Income

4. Revenue Surplus

The correct answer is: Gross Margin

The correct term for the amount that remains after the costs of goods sold (COGS) are deducted from revenue is gross margin. Gross margin specifically measures the profitability of a company's core business activities, as it indicates how much money is left over from sales after accounting for the direct costs associated with producing the products sold. Calculating gross margin is essential for understanding the efficiency of production and pricing strategies, as it helps businesses assess how well they are managing their production costs relative to their sales revenue. This metric is typically expressed either in absolute terms or as a percentage of revenue, providing insights into overall financial health and operational performance. Other terms, such as net profit, operating income, and revenue surplus, relate to different aspects of financial performance. Net profit takes into account all expenses beyond COGS, including operating expenses, taxes, and interest, providing a broader measure of total profitability. Operating income focuses on profitability derived specifically from operational activities, excluding non-operational income and expenses. Revenue surplus generally refers to excess revenue over expenses but is less commonly used in financial terminology compared to the other measures.