Question

Information from the records of Chrome Ponies Enterprises for June 2018 is as follows:

a) Sales $41,000
b) Direct Labor $10,000
c) Selling and admin. expenses $7,000
d) Direct materials purchases $5,600
e) Factory overhead $13,500
Inventories
a) June 1, 2018 June 30, 2018
b) Direct materials $1,200 $1,300
c) Work in process $2,500 $2,800
d) Finished goods $2,300 $1,900
What is the gross margin (profit)?
a) $11,500
b) $11,900
c) $4,500
d) $4,600

Answer 1

The gross margin (profit) is calculated by subtracting the cost of goods sold from sales. After computing the COGS as $29,100, the gross margin is found to be $11,900. Option (b) $11,900 is the correct answer.

Step-by-step explanation:

To calculate the gross margin (profit), we need to determine the cost of goods sold (COGS) and then subtract this from the sales.

Gross Margin = Sales - Cost of Goods Sold

Let's calculate the COGS first:

1. Beginning Direct Materials Inventory: $1,200
2. + Direct Materials Purchases: $5,600
3. - Ending Direct Materials Inventory: $1,300
4. = Direct Materials Used: $5,500
5. + Direct Labor: $10,000
6. + Factory Overhead: $13,500
7. + Beginning Work in Process Inventory: $2,500
8. - Ending Work in Process Inventory: $2,800
9. = Total Manufacturing Costs for Goods Available for Sale: $28,700
10. + Beginning Finished Goods Inventory: $2,300
11. - Ending Finished Goods Inventory: $1,900
12. = Cost of Goods Sold: $29,100

Next, subtract the COGS from the sales to find the gross margin:

Gross Margin = Sales ($41,000) - COGS ($29,100) = $11,900

Therefore the correct answer is (b) $11,900.