Future Business Leaders of America (FBLA) Agribusiness Practice Test

How is profit calculated?

1. Revenue plus gross margin

2. Gross margin minus expenses

3. Revenue minus liabilities

4. Operating expenses plus gross margin

The correct answer is: Gross margin minus expenses

Profit is calculated by taking the gross margin and subtracting the expenses associated with operating the business. To clarify, gross margin represents the total revenue generated from sales minus the cost of goods sold, which directly relates to the production of goods. Once you have this figure, it reflects the earnings before taking into account the operational costs, such as marketing, rent, salaries, and other overhead expenses. By subtracting total expenses from gross margin, you arrive at the net profit, which indicates the actual profit available to the business after all costs have been accounted for. This is a crucial metric for assessing the financial health of a business, as it shows how much money remains after covering all operational costs. Understanding this calculation can help individuals make informed decisions about budgeting, pricing strategies, and overall financial management within an agribusiness context.