Omission overstates COS for personal goods, understating gross margin Steps:

• Calculate reported gross margin: ($10,000 -$7,000) / $10,000 = 30%.
• Goods taken for personal use should exclude cost $280 from COS, as not sold to customers.
• Correct COS = $7,000 -$280 = $6,720; correct GP =$10,000 - $6,720 =$3,280.
• Correct margin = $3,280 /$10,000 = 32.8%; reported 30% is 2.8% lower. Why B is correct:
• Omission fails to exclude personal withdrawal cost from COS (per accounting rules for drawings), overstating COS and understating margin by $280 /$10,000 = 2.8%. Why the others are wrong:
• A: Direction wrong; omission understates, not overstates.
• C: Uses selling price $400 /$10,000 ≈ 4%, but effect ties to cost, not selling price.
• D: 4.1% misapplies selling price ratio without basis in COS adjustment.

Final answer: B