In its first year of operations, a company has sales of $110,000, ending finished goods inventory of $12,000, variable manufacturing costs of $48,000, and fixed manufacturing costs of $30,000 for the year. Assuming the company uses direct costing, the manufacturing margin for the year is
A)$62,000.
B)$74,000.
C)$50,000.
D)$80,000.

Question

Quizplus · Accepted Answer

Manufacturing margin = Sales - Variable manufacturing costs - Fixed manufacturing costs - Ending finished goods inventory
Manufacturing margin = $110,000 - $48,000 - $30,000 - $12,000 = $20,000
Therefore, the manufacturing margin for the year is $20,000. However, the question asks for the manufacturing margin, not the operating margin. Therefore, choice B, $74,000 is incorrect as the operating margin includes selling and administrative expenses. Choice A and C are also incorrect as they do not account for the ending finished goods inventory. Therefore, the correct answer is B.

In Its First Year of Operations, a Company Has Sales