When calculating gross margin, which of the following must be deducted from sales?

The correct answer is that Cost of Goods Sold must be deducted from sales when calculating gross margin. Gross margin is a critical financial metric that reflects the difference between sales revenue and the costs directly associated with producing the goods or services sold. By subtracting the Cost of Goods Sold (COGS) from sales, you arrive at the gross profit, which is used to evaluate how efficiently a company is producing and selling its products.

Gross margin is essential for understanding a company's profitability before accounting for operating expenses, taxes, and other costs. It provides insight into how much money is left from sales after covering the direct costs of production, which is crucial for business decision-making and financial analysis. Therefore, including Cost of Goods Sold in this calculation is fundamental to assessing the core profitability of the company's primary business activities.