Explain how to compute gross profit by completing the following sentence. Gross profit is calculated by taking the net (sales/costs) of a product and (adding/subtracting) the cost of the goods sold.

Net sales; subtracting

Explanation:

The formula to compute the gross profit is shown below:

Gross profit = Net sales - cost of goods sold

where,

Net sales = Sales - sales return and allowances - sales discount

Cost of goods sold = All cost that are related to the production of the product

So by deducting the cost of goods sold from the net sales we can get the gross profit