Gross margins indicate relative profitability after cost of sales Steps: - Gross margin = (gross profit / sales revenue) × 100%; higher value means better control over production costs relative to sales. - Company Y's gross margin is 42.8%, exceeding Company X's 38.7%. - Profit margins are identical at 5.4%, but this measures net profitability after all expenses, not directly relevant to gross margin comparison. - Statement B directly follows from the given gross margin percentages. Why the correct option is correct: - Gross margin definition shows Company Y retains a higher percentage of sales as gross profit (42.8% vs. 38.7%), confirming a better gross margin. Why the others are wrong: - A: Identical profit margins indicate same net profit ratio to sales, but absolute profits depend on sales volume; not enough information. - C: Same profit margin with Y's higher gross margin suggests possibly higher operating expenses % for Y, but profit also includes taxes/interest; not enough information. - D: X's lower gross margin implies higher cost of sales % (61.3% vs. 57.2%); absolute costs unknown without sales data. …