Question

Product Contribution is a measure of how profitable each of your products was last year by taking your Sales Revenue, Less Cost of Goods Sold to find the product's Gross Margin. Which report would you view to see the Gross Margins (how profitable) each of your products were last year?

a) Income Statement
b) Balance Sheet
c) Cash Flow Statement
d) Statement of Retained Earnings

Answer 1

The Income Statement is the correct report to view in order to see the Gross Margins and assess the profitability of each product based on their Sales Revenue and Cost of Goods Sold.

Step-by-step explanation:

To determine how profitable each product was in the previous year by examining the Gross Margins, the appropriate report to view is the Income Statement. This financial statement provides a summary of a company's performance over a specific period, including Total Revenue, Cost of Goods Sold (COGS), and Gross Margin.

Total Revenue is calculated as Price x Quantity, which is the income generated from selling products. After subtracting the explicit costs (including COGS) from Total Revenue, we get the Gross Margin, which is a measure of profitability for each product.