Which one of the following is correct formula for calculating gross margin?
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A. B. C. D.B
The correct formula for calculating gross margin is B. Gross Profit/Net Sales.
Gross margin is a financial ratio that represents the percentage of sales revenue that exceeds the cost of goods sold (COGS). It's an important indicator of a company's financial health and profitability. The gross margin is calculated by dividing gross profit by net sales.
Gross profit is the revenue earned from sales minus the cost of goods sold (COGS). COGS is the cost of the materials, labor, and other direct expenses that are used to produce the goods or services sold by the company. Gross profit represents the amount of money that the company has left after deducting the cost of goods sold.
Net sales represent the total revenue earned by the company from the sale of goods or services, minus any returns or discounts.
The formula for calculating gross margin is:
Gross Margin = Gross Profit / Net Sales
Therefore, the correct formula for calculating gross margin is B. Gross Profit/Net Sales. Option A (Net Profit/Net Sales) is incorrect because it does not take into account the cost of goods sold, and option C (Net Income/Net Sales) is incorrect because it includes all expenses, not just the cost of goods sold. Option D (Gross Profit/credit Sales) is incorrect because it only includes sales made on credit, whereas gross profit should be calculated based on all sales, regardless of whether they are made on credit or for cash.