CPIM Practice Exam

In which financial statement would you find gross margin calculated?

1. Balance Sheet

2. Income Statement

3. Cash Flow Statement

4. Statement of Changes in Equity

The correct answer is: Income Statement

The gross margin is calculated on the income statement, as it reflects a company's revenue from sales after deducting the cost of goods sold (COGS). This measurement is essential for evaluating the efficiency of a company's production process and its overall profitability before accounting for operating expenses, taxes, and other costs. The income statement provides a summary of revenues and expenses over a specific period, making it the appropriate financial document to present the gross margin. In contrast, the balance sheet presents a snapshot of a company's assets, liabilities, and equity at a specific point in time, while the cash flow statement details the cash inflows and outflows during a period. The statement of changes in equity illustrates changes in ownership equity throughout the reporting period. None of these other statements focus on revenue versus cost in the same way that the income statement does, which is why the gross margin appears solely on the income statement.