Question

The following beginning and ending inventory balances apply to XYZ’s 2009 accounting period:

Numbers are shown as Beginning, Ending:

Raw Materials Inventory $24,000, $22,000

Work in Process Inventory $32,000, $33,000

Finished Goods Inventory $20,000, $17,000

During 2009, the company purchased $234,000 of direct raw materials. It incurred $180,000 of direct labor costs for the year and allocated $260,000 of manufacturing overhead costs to work in process. There was no overapplied or underapplied overhead. Revenue from goods sold during the year was $800,000.

Question: What is the gross margin?

Answer 1

Raw materials used in production = Beginning Raw Materials + Raw Materials Purchased – Ending Raw Materials
Raw materials used in production = $24000 + $234,000 - $22000	$236,000.00
Cost of Goods Manufactured = Total Manufacturing Cost (Direct Materials + Direct Labor + Overhead applied) + Beginning Work In Process Inventory – Ending Work in Process Inventory
Cost of Goods Manufactured = ($236,000 + $180,000 + $260,000)+ $32000 - $33,000	$675,000.00
Cost of Goods Sold = Beginning Finished Goods Inventory + Cost of Goods Manufactured – Ending Finished Goods Inventory
Cost of Goods Sold = $20000 + $675000 -17000	$678,000.00
Gross Margin = Sales - COGS
Gross Margin = $800,000 - $678,000	$122,000.00