Question

Use the following account numbers and corresponding account titles to answer the following question.

Account No. Account Title
(1) Cash
(2) Merchandise inventory
(3) Cost of goods sold
(4) Transportation-out
(5) Dividends
(6) Common stock
(7) Selling expense
(8) Loss on the sale of land
(9) Sales
Which accounts would affect gross margin?
a. Account numbers 3, 4, 7 and 9
b. Account numbers 3, 7, 8 and 9
c. Account numbers 2 and 9
d. Account numbers 3 and 9

Answer 1

d. Account numbers 3 and 9

Step-by-step explanation:

gross margin ratio = gross profit / total sales

gross profit = total sales - cost of goods sold

so gross margin ratio = (total sales - cost of goods sold) / total sales

so the accounts that affect gross margin are total sales (9) and cost of goods sold (3)

the gross margin gives us a percentage of what is left after covering COGS and can be used to pay for S&A expenses or result in profit.