In absorption costing gross profit equals

• A. Sales - variable costs
• B. Sales - total costs
• C. Sales - cost of sales
• D. Sales - fixed costs

Answer: (C)

Under absorption costing, all manufacturing costs—both variable and fixed—are allocated to produced goods. When those goods are sold, their total manufacturing cost becomes the cost of sales (cost of goods sold). Gross profit is the difference between sales revenue and cost of sales, so gross profit equals Sales minus cost of sales. The other options aren’t correct because subtracting only variable costs gives a contribution margin, subtracting total costs would be net profit, and subtracting fixed costs ignores the cost of the goods actually sold.