Question

The following information was summarized from the records of the Galecki Company for the year just ended: Sales 700,000 Fixed administrative expenses 110,000 Fixed cost of goods sold 100,000 Fixed selling expenses 50,000 Variable administrative expenses 30,000 Variable cost of goods sold 220,000 Variable selling expense 170,000 (Note that the information set forth above is that same as that provided for the previous question.) What was the company's gross margin?

1) 280,000
2) 380,000
3) 480,000
4) 580,000

Answer 1

The company's gross margin was 3) $480,000.

Step-by-step explanation:

To calculate the gross margin, subtract the total cost of goods sold (both fixed and variable) from the total sales revenue. Total fixed costs are $210,000 ($110,000 fixed administrative expenses + $100,000 fixed cost of goods sold + $50,000 fixed selling expenses).

Total variable costs amount to $420,000 ($30,000 variable administrative expenses + $220,000 variable cost of goods sold + $170,000 variable selling expenses). Adding fixed and variable costs gives a total cost of goods sold of $630,000 ($210,000 fixed + $420,000 variable).

Subtracting this from sales revenue ($700,000) gives the gross margin of $480,000 ($700,000 - $630,000). The gross margin represents the portion of revenue that remains after accounting for the direct costs of producing goods or services.

In this case, after accounting for both fixed and variable costs associated with producing and selling goods, the company retained $480,000 as its gross margin. This metric is crucial for assessing a company's profitability and efficiency in managing its production and selling costs relative to its sales revenue. Thus, option c is correct.