Final answer:
The result of subtracting Selling, General, and Administrative Expenses from Gross Profit/Gross Margin is Operating Profit or Operating Income, reflecting a company's core profitability before taxes and interest.
Step-by-step explanation:
The equation Gross Profit/Gross Margin minus Selling, General, and Administrative Expenses equals Operating Profit or Operating Income. To understand this further:
- Accounting profit is calculated as total revenues minus explicit costs, which include costs such as wages, rents, materials, and depreciation.
- Average profit, or profit margin, is the profit divided by the quantity of output produced.
- Economies of scale refer to a situation where the long-run average cost of production decreases as total output increases.
Therefore, after subtracting Selling, General, and Administrative Expenses from the Gross Profit/Gross Margin, a company determines its ability to generate profit from its core operations before taxes and interest, also reflecting efficiency in controlling expenses relative to its gross margin.