A company's gross profit measures its efficiency in using labor and supplies to produce goods or services.
Gross profit, also referred to as gross income, is the difference between revenues and cost of goods sold (COGS). Production efficiency is typically measured by evaluating how efficiently labor and supplies are managed by a company. Variable costs, which fluctuate with production output, are generally included in gross profit. They include, for example, labor and shipping.
An organization's gross profit is its profit after deducting the costs associated with making and selling its products or providing its services. In a company's income statement, gross profit can be calculated by subtracting the cost of goods sold (COGS) from revenue (sales). Income statements normally contain these numbers.
Generally, variable costs are examined, i.e., costs that fluctuate based on output, such as: