Econo Company
In July, Econo Company purchased materials costing $21,000 and incurred direct labour cost of $18,000. Manufacturing overhead totalled $32,000 for the month. Information on inventories was as follows: $\begin{array}{lrr}&\text { July } 1& \text { July } 31\
\text { Materials } & \$ 6,200 & \$ 7,100 \
\text { Work-in-process } & \$ 700 & \$ 1,200 \
\text { Finished goods } & \$ 3,300 & \$ 2,700
\end{array}$
-Refer to Bowring Company. What was the gross margin for the year?
A) $40,000
B) $50,000
C) $60,000
D) $100,000

Question

Quizplus · Accepted Answer

The gross margin is the difference between sales revenue and the cost of goods sold. The cost of goods sold is the sum of the beginning inventory, the cost of goods manufactured, and the ending inventory. The cost of goods manufactured is the sum of the direct materials used, the direct labor incurred, and the manufacturing overhead incurred.In this case, the beginning inventory is $6,200, the cost of goods manufactured is $21,000 + $18,000 + $32,000 = $61,000, and the ending inventory is $7,100. Therefore, the cost of goods sold is $6,200 + $61,000 + $7,100 = $74,300.The sales revenue is not given in the question, so we cannot calculate the gross margin. However, we can say that the gross margin is less than $74,300.

Econo Company in July, Econo Company Purchased Materials Costing $21,000

Econo Company
in July, Econo Company Purchased Materials Costing $21,000