Figure 2-16 An appliance repair shop purchased materials costing $9,000 in May.The beginning inventory of material parts was $4,500 and the ending inventory of material parts was $4,000.Payments for direct labor for May 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 May was $50,000.
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Refer to Figure 2-16.What is the gross margin for May?

Question

Quizplus · Accepted Answer

Gross margin is calculated as Revenue minus Cost of Goods Sold (COGS). COGS includes the cost of materials used, direct labor, and overhead. The cost of materials used is the beginning inventory plus purchases minus ending inventory: $4,500 + $9,000 - $4,000 = $9,500. Adding direct labor ($27,000) and overhead ($5,000), the total COGS is $41,500. Therefore, the gross margin is $50,000 (revenue) - $41,500 (COGS) = $8,500.

Figure 2-16 an Appliance Repair Shop Purchased Materials Costing $9,000