Which statement correctly defines gross margin?

Which statement correctly defines gross margin?

• A. Operating income divided by revenue
• B. Revenue minus cost of goods sold
• C. Net profit margin
• D. Revenue minus operating expenses

Answer: (B)

Gross margin shows how much money is left from sales after covering the direct costs of producing goods. It is calculated by subtracting the cost of goods sold from revenue, giving the gross profit. This amount can be shown as a dollar figure or as a percentage of revenue (gross margin percentage = gross margin ÷ revenue). It differs from operating income, which subtracts operating expenses like selling, general, and administrative costs from gross margin, and from net profit margin, which subtracts all expenses, taxes, and interest. Revenue minus operating expenses corresponds to operating income, not gross margin. So subtracting cost of goods sold from revenue is the correct way to define gross margin.

Gross margin shows how much money is left from sales after covering the direct costs of producing goods. It is calculated by subtracting the cost of goods sold from revenue, giving the gross profit. This amount can be shown as a dollar figure or as a percentage of revenue (gross margin percentage = gross margin ÷ revenue). It differs from operating income, which subtracts operating expenses like selling, general, and administrative costs from gross margin, and from net profit margin, which subtracts all expenses, taxes, and interest. Revenue minus operating expenses corresponds to operating income, not gross margin. So subtracting cost of goods sold from revenue is the correct way to define gross margin.