Which statement correctly differentiates gross profit and gross margin?

• A. Gross profit is a dollar amount; gross margin is a percentage of revenue.
• B. Gross profit and gross margin are interchangeable terms for profitability.
• C. Gross profit includes depreciation expense; gross margin excludes it.
• D. Gross profit is the total revenue minus cost of goods sold; gross margin is gross profit divided by revenue.

Answer: (D)

The key idea is that these two measures are related but serve different purposes: one is a dollar amount, the other a percentage that shows efficiency.

Gross profit is the money left when you subtract the cost of producing the goods sold from revenue. It shows how much profit is available from core operations before other expenses.

Gross margin takes that gross profit and puts it in relative terms by dividing by revenue, usually expressed as a percentage. It tells you what portion of every dollar of revenue remains after accounting for the direct costs of producing the goods.

So the precise relationship is: gross profit equals revenue minus cost of goods sold, and gross margin equals gross profit divided by revenue. This makes it clear why the chosen statement is correct. The other choices either mix up the idea of a dollar amount with a percentage, or introduce components (like depreciation) in a way that isn’t universally correct.