What formula represents the gross margin percentage?

The formula representing the gross margin percentage is derived from the relationship between markup and retail price. Gross margin percentage reflects the portion of revenue that exceeds the cost of goods sold, expressing how much of the sales price is retained as profit.

To calculate this, you use markup dollars, which is the selling price minus the cost price, divided by the retail price. This metric provides insight into the profitability of the products sold. Essentially, it shows how much of every dollar earned in sales contributes to covering costs and generating profit.

In contrast to the other choices, this formula accurately captures the essence of gross margin percentage by focusing on the selling price (retail price) as the base, which is fundamental in merchandising and inventory management. Consequently, understanding and utilizing this formula is critical for effective pricing strategies and financial health analysis within a business.