Figure 2-16 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.
Refer to Figure 2-16. 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 minus Cost of Goods Sold (COGS). COGS is calculated as Beginning Inventory + Purchases - Ending Inventory. Here, COGS = $4,500 + $9,000 - $4,000 = $9,500. Gross Margin = $50,000 - $9,500 = $40,500. However, the correct choice seems to be a mistake in the options provided, as none match the calculation.

Figure 2-16 a Small Engine Repair Shop Purchased Materials Costing