DECA Retail Merchandising Practice Exam 2026 – Comprehensive Test Prep

The formula to calculate gross margin percentage is derived from the relationship between a company's revenue and the cost of goods sold (COGS). The correct answer uses the formula (Revenue - Cost of Goods Sold) / Revenue.

Gross margin percentage helps assess how much revenue exceeds the costs associated with the production of goods sold, allowing businesses to understand their profitability at the core operational level. By subtracting COGS from revenue, you determine the gross profit the company has earned. Dividing this by revenue expresses it as a percentage, indicating how much gross profit the company retains from each dollar of sales. A higher gross margin percentage typically indicates better efficiency in production and sales, reflecting positively on the business's overall profitability.

Options that involve net profit or operating expenses do not accurately represent gross margin, which specifically focuses on the relationship between revenue and COGS, rather than overall profitability or other expense categories. Hence, choosing the formula that accurately depicts the definition of gross margin demonstrates an understanding of financial metrics essential for retail merchandising analysis.