Accounting Dictionary

Gross Margin

Gross Margin is Sales – Cost of Goods Sold OR Sales minus Cost of Goods Manufactured.

Let’s say you sold $20,000 worth of shoes. You paid $4,000 for the shoes and $5,000 in income taxes. Your Gross Margin would be $20,000 -$4,000 or $16,000. The gross margin calculation considers only the cost of the product. Other expenses may be essential, but they are not part of the gross margin calculation. If you have a factory and made the shoes instead of buying them, you would deduct the cost to make the shoes, the Cost of Goods Manufactured instead of the Cost of Goods Sold.

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