If net sales on the operating statement for Brandywine Company were $200,000--and gross sales were $240,000--what would the cost of sales be if the gross margin was 20 percent?
A) $140,000
B) $168,000
C) $160,000
D) $120,000
E) Cannot be determined without knowing Brandywine's expenses and net profit.

Question

Quizplus · Accepted Answer

Gross margin is the percentage of sales that remains after deducting the cost of goods sold. In this case, the gross margin is 20%, therefore the cost of goods sold would be 80% of the gross sales or $192,000 ($240,000* 0.8). To get the net sales, we deduct the cost of sales from gross sales, so net sales would be $240,000 - $192,000 = $48,000. However, the question only asks for the cost of sales, which is $192,000, and is closest to option C ($160,000).

If Net Sales on the Operating Statement for Brandywine Company