Answer :
The correct definition of product gross margins is the selling price minus manufacturing cost, encompassing materials, labor, and overhead. High gross margins indicate a significant markup over production costs, essential for businesses with low sales volumes. Gross margins help assess profitability by comparing the revenue to average production costs. So, correct the option is b) Selling price minus manufacturing cost.
The correct definition of product gross margins is Selling price minus manufacturing cost. Gross margin is a critical measure of a company's financial health and represents the difference between the revenue generated from selling a product and the costs associated with producing it. This includes materials, labor, and overhead expenses. Businesses with high gross margins like professional services can charge much more than their unit costs, indicating they add significant value beyond the costs to produce their services. Nonetheless, businesses operating at tight margins need to maintain high volume to be profitable.
Looking at a cooperative's financial performance, the gross margin helps ascertain the viability and sustainability of its pricing strategy. Operating costs such as selling and administrative costs must be subtracted from the gross margin to derive the operating income. The difference between operating income and other incomes and expenses, like Patronage Refunds, results in the cooperative's overall financial success or shortfall.
When assessing profitability, one can quickly determine by comparing the average cost with the selling price. If the price exceeds the average cost, the business's total profit will be positive. Conversely, if the price is less than the average cost, the business will incur losses. So, correct the option is b) Selling price minus manufacturing cost.
