what method calculates gross margin
absorption costing
Gross margin is calculated by subtracting the cost of goods sold (COGS) from the revenue or sales generated by a business. The formula for calculating gross margin is as follows:
Gross Margin = Revenue or Sales – Cost of Goods Sold (COGS)
For instance, suppose a company sells a product for $50, and the cost of materials and labor to make the product is $20. In this case, the gross margin will be $30.
Gross Margin = $50 – $20 = $30
The gross margin is an essential financial metric that represents the difference between the sales made by a business and the cost of making or acquiring the goods or services sold. As such, it is an indication of a company’s profitability before taking into account the operating expenses and taxes.
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