Up to this point, computing gross profit earned by a business has been fairly simple. When Angus sold a set of bagpipes from his shop for $600, having purchased them for $400, his gross profit was the difference of $200. When the Spouse House Company bought a shed and windows for $900 and sold the unit for $1,500, its gross profit was $600. But now, when Rosie Rouse determines that the Spouse House Company will cut out the intermediary shed supplier and manufacture Spouse Houses from raw lumber, it has become a manufacturer, and gross profit becomes harder to compute.

Consider what the Spouse House Company was buying when it bought a shed from Fred’s Sheds and then resold the shed as a Spouse House. It ...

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