The following beginning and ending inventory balances apply to XYZ’s 2009 accoun

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?

Explanation / Answer

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

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