Profit margin is defined as which of the following?

• A. The difference between the cost prices and the selling price
• B. The selling price minus the fixed costs
• C. The total revenue
• D. The gross profit before expenses

Answer: (A)

Profit margin is the money kept from a sale after paying for the item itself. In simple terms, it’s the difference between the selling price and the cost to obtain or produce the item. That remaining amount represents the gross profit per unit and shows how much room there is to cover other expenses and still earn a profit. For example, sell at 100 and pay 60 to acquire or make the item, the margin is 40. This is why the difference between cost and selling price best describes the margin. The other ideas don’t fit because they either ignore the item's cost, focus on total revenue, or describe gross profit in a different framing.