Question

A company has $600 million in sales, and $96 million in promotion allowance on a product...

A company has $600 million in sales, and $96 million in promotion allowance on a product that cost $210 million to produce. What is the gross margin on the product?

  • $96
  • $294
  • $306
  • $390
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Answer #1

Answer :

Gross Margin = Revenue earned through sales - Cost of goods sold

Cost of goods sold here will include both cost of production which is $210 million and also promotional allowance of $96 million which are administrative expenses related to the selling of the good.

Therefore : Revenue = $600 million

Cost of goods sold = $210 million + $96 million = $306 million

Gross Margin = Revenue - Cost of goods sold = $600 million - $306 million = $294 million

Answer : Option b) $294 million

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