The correct formula for calculating Gross Profit (Gross Margin) is: Sales Sales Discounts Sales Returns and Allowances + ( Beginning Inventory + Purchases + Purchase Returns and Allowances + Purchase Discounts + Transportation-In Ending Inventory ) SalesSales DiscountsSales Returns and Allowances+(Beginning Inventory+Purchases+Purchase Returns and Allowances+Purchase Discounts+Transportation-InEnding Inventory) This formula accounts for the total revenue from sales and adjusts for any discounts given to customers, returns, and allowances. It then subtracts the cost of goods sold, which is calculated as the sum of beginning inventory, purchases, and other relevant costs, and adjusts for any returns, discounts, or allowances related to purchases. Finally, it subtracts the value of ending inventory to determine the gross profit or gross margin