A company has a gross margin of 58 percent and an operating margin of 29 percent. If the operating income is $20,500, what is the gross profit?

Question

Quizplus · Accepted Answer

We can use the following formula to determine the gross profit: 
Gross Profit = Revenue - Cost of Goods Sold 
We are not given the revenue or cost of goods sold, but we can use the information given to solve for the cost of goods sold: 
Gross Margin = (Revenue - Cost of Goods Sold) / Revenue 
0.58 = (Revenue - Cost of Goods Sold) / Revenue 
0.58 Revenue = Revenue - Cost of Goods Sold 
0.42 Revenue = Cost of Goods Sold

Now we can use the operating margin to solve for revenue: 
Operating Margin = Operating Income / Revenue 
0.29 = 20500 / Revenue 
Revenue = 70517.24

Finally, we can plug in our values to solve for gross profit: 
Gross Profit = Revenue - Cost of Goods Sold 
Gross Profit = 70517.24 - 29517.24 
Gross Profit = 41000

Therefore, the answer is C.

A Company Has a Gross Margin of 58 Percent and an Operating