A small engine repair shop purchased materials costing $9,000 in July. The beginning inventory of material parts was $4,500 and the ending inventory of material parts was $4,000. Payments for direct labor for July totaled $27,000, secretarial costs were $2,000, and overhead of $5,000 was incurred. In addition, $5,000 was spent on advertising and $2,000 for the franchise name. Revenue for July was $50,000.
What is the gross margin for July?
A)$41,500
B)$43,500
C)$1,500
D)$8,500

Question

Quizplus · Accepted Answer

Gross margin is calculated as Revenue - Cost of Goods Sold (COGS). COGS includes the beginning inventory, plus purchases, minus the ending inventory, and does not include operating expenses like advertising, franchise fees, secretarial costs, or overhead. For July, COGS = $4,500 (beginning inventory) + $9,000 (purchases) - $4,000 (ending inventory) = $9,500. Direct labor is also part of COGS, so add $27,000 to $9,500 = $36,500. Therefore, Gross Margin = $50,000 (Revenue) - $36,500 (COGS) = $13,500. However, none of the provided options match this calculation, indicating a possible mistake in the calculation or misunderstanding of the question's requirements. Given the options, the correct calculation for Gross Margin should be approached differently.

A Small Engine Repair Shop Purchased Materials Costing $9,000 in July