Cost of sales signifies what in a business?

Cost of sales represents the direct expenses incurred in the process of producing the goods that a business sells. This includes costs such as raw materials, labor directly involved in production, and any manufacturing overhead directly tied to the production of the sold products. Understanding cost of sales is crucial for determining gross profit, as it is subtracted from total revenue to assess how efficiently a business is producing its goods.

In contrast, total revenue generated from sales encompasses all income earned from selling products or services, while marketing costs pertain to expenses aimed at promoting products to consumers, which do not directly relate to production. Financial reserves involve savings or capital that a business has set aside, which is unrelated to the costs incurred during the sales process. Thus, B accurately identifies the core purpose of cost of sales in a business context.