What Is the Formula to Calculate Gross Margin

question 185

Multiple Choice

What is the formula to calculate gross margin?

• A)sales revenue − selling and administrative expenses
• B)sales revenue − cost of goods sold
• C)cost of goods manufactured + beginning finished goods inventory − ending finished goods inventory
• D)total product costs + beginning work in process − ending work in process

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Definitions:

GAAP

Generally Accepted Accounting Principles; a set of rules and standards used for financial reporting and accounting.

Cost Flow Assumption

An assumption about how costs are removed from inventory and reported as cost of goods sold, influencing how inventory and profits are accounted for.

Variable Costing

An accounting method that only includes variable costs in product costs and treats fixed costs as period expenses.

Fixed Production Costs

Expenses that do not change with the level of production, such as rent for factory premises, salaries of permanent staff, and depreciation of machinery.