What is the formula to calculate the gross profit to sales ratio?

The formula to calculate the gross profit to sales ratio is derived from the relationship between total sales revenue and the direct costs associated with producing those sales, known as the cost of goods sold (COGS).

To find the gross profit, you subtract the cost of goods sold from total sales. This gives you the gross profit figure. The next step is to express this gross profit as a percentage of total sales, which is accomplished by dividing the gross profit by total sales.

The formula can be articulated as follows: (Total Sales - Cost of Goods Sold) / Total Sales. This results in a ratio that shows what portion of sales revenue remains after accounting for the costs directly associated with producing the goods sold. The outcome can then be multiplied by 100 to convert it into a percentage if needed.

This calculation is crucial for understanding how efficiently a business is producing its products relative to its sales, making Option B the correct choice for the formula that represents the gross profit to sales ratio.