What is included in the calculation of gross margin?

What is included in the calculation of gross margin?

• A. Total revenue and total liabilities
• B. Cost of goods sold only
• C. Revenue and overhead costs
• D. Revenue and cost of goods sold

Answer: (D)

The calculation of gross margin is centered around determining the profitability of a company's core business activities, specifically the production and sale of goods. It is calculated by subtracting the cost of goods sold (COGS) from total revenue. Thus, gross margin provides insight into how efficiently a company is producing and selling its products. In this context, revenue represents the total income generated from sales, while cost of goods sold includes all direct costs attributable to the production of those goods, like raw materials and direct labor. This distinction allows businesses to understand how much profit they are making from sales before considering operating expenses, taxes, and other overhead costs. The other options do not accurately capture the elements involved in calculating gross margin. For instance, liabilities and overhead costs are not directly factored into this specific calculation, as gross margin focuses solely on sales revenue relative to the costs incurred in producing the goods sold.

The calculation of gross margin is centered around determining the profitability of a company's core business activities, specifically the production and sale of goods. It is calculated by subtracting the cost of goods sold (COGS) from total revenue. Thus, gross margin provides insight into how efficiently a company is producing and selling its products.

In this context, revenue represents the total income generated from sales, while cost of goods sold includes all direct costs attributable to the production of those goods, like raw materials and direct labor. This distinction allows businesses to understand how much profit they are making from sales before considering operating expenses, taxes, and other overhead costs.

The other options do not accurately capture the elements involved in calculating gross margin. For instance, liabilities and overhead costs are not directly factored into this specific calculation, as gross margin focuses solely on sales revenue relative to the costs incurred in producing the goods sold.