In gross margin percentage calculations, which price is used as the denominator?

In gross margin percentage calculations, which price is used as the denominator?

• A. Cost Price
• B. Final Sale Price
• C. Retail Price
• D. Wholesale Price

Answer: (B)

In gross margin percentage, you’re measuring profit relative to the actual money the sale brings in. The denominator is the final sale price—the amount the customer pays. This reflects the true revenue from that transaction, not the cost or a list/wholesale price. Use the formula: (final sale price − cost of goods sold) ÷ final sale price. For example, if an item costs 40 and sells for 60, the margin is (60 − 40) ÷ 60 = 20/60 ≈ 33.3%. If the price drops to 50, the margin becomes (50 − 40) ÷ 50 = 10/50 = 20%. Using cost or wholesale/retail price as the denominator would shift the metric away from the actual revenue generated per sale.

In gross margin percentage, you’re measuring profit relative to the actual money the sale brings in. The denominator is the final sale price—the amount the customer pays. This reflects the true revenue from that transaction, not the cost or a list/wholesale price. Use the formula: (final sale price − cost of goods sold) ÷ final sale price. For example, if an item costs 40 and sells for 60, the margin is (60 − 40) ÷ 60 = 20/60 ≈ 33.3%. If the price drops to 50, the margin becomes (50 − 40) ÷ 50 = 10/50 = 20%. Using cost or wholesale/retail price as the denominator would shift the metric away from the actual revenue generated per sale.