Gonzalez Company has no beginning and ending inventories,and reports the following data about its only product:
$$\begin{array} { l l }
\text { Direct materials used } & \$ 300,000 \
\text { Direct labor } & \$ 80,000 \
\text { Fixed indirect manufacturing } & \$ 100,000 \
\text { Fixed selling and administrative } & \$ 190,000 \
\text { Variable indirect manufacturing } & \$ 20,000 \
\text { Variable selling and administrative } & \$ 90,000 \
\text { Selling price(per unit) } & \$ 50
\end{array}$$
$\begin{array} { l }
\text {Units produced and sold }&10,000 \
\end{array}$

Gonzalez Company uses the absorption approach to prepare the income statement.What is the gross margin?
A) $0
B) $20,000
C) $100,000
D) $120,000

Question

Gonzalez Company has no beginning and ending inventories,and reports the following data about its only product:
$$\begin{array} { l l } 
\text { Direct materials used } & \$ 300,000 \
\text { Direct labor } & \$ 80,000 \
\text { Fixed indirect manufacturing } & \$ 100,000 \
\text { Fixed selling and administrative } & \$ 190,000 \
\text { Variable indirect manufacturing } & \$ 20,000 \
\text { Variable selling and administrative } & \$ 90,000 \
\text { Selling price(per unit) } & \$ 50
\end{array}$$
$\begin{array} { l  }
 \text {Units produced and sold }&10,000 \
\end{array}$

Gonzalez Company uses the absorption approach to prepare the income statement.What is the gross margin?
A) $0
B) $20,000
C) $100,000
D) $120,000

Quizplus · Accepted Answer

Gross margin is sales revenue minus cost of goods sold. Since there is no beginning or ending inventory, the cost of goods sold is equal to the total manufacturing costs. Total manufacturing costs are the sum of direct materials used, direct labor, fixed indirect manufacturing, and variable indirect manufacturing. Therefore, the gross margin is $500,000 - $400,000 = $100,000.

Gonzalez Company Has No Beginning and Ending Inventories,and Reports the Following