Question

Item 4

Item 4

Acme Inc. is a merchandise reseller that provided the following information:

	Amount
Number of units sold		13,000
Selling price per unit	$	16
Variable selling expense per unit	$	1
Variable administrative expense per unit	$	2
Total fixed selling expense	$	19,000
Total fixed administrative expense	$	15,000
Beginning merchandise inventory	$	9,000
Ending merchandise inventory	$	23,000
Merchandise purchases	$	87,000

What is the company's gross margin for the period?

Answer 1

Gross margin is given by:

Gross margin = Sales - Cost of goods sold

First we will calculate sales and cost of goods sold as per below:

Sales = 13000 units * $16 = $208000

Cost of goods sold = Beginning merchandise inventory + Merchandise purchases - Ending merchandise inventory

Cost of goods sold = $9000 + $87000 - $23000 = $73000

Now,

Gross margin = Sales - Cost of goods sold

Gross margin = $208000 - $73000 = $135000

Gross margin (%) = Gross margin / Sales

Gross margin (%) = $135000 / $208000 = 64.90%