Tisdale Company started the year with the following beginning account balances: Raw Materials Inventory, $42,000; Work in Process Inventory, $90,000; and Finished Goods Inventory, $20,000. During the year, the company purchased $60,000 of raw materials and ended the year with $16,000 of raw materials. Direct labor costs for the year were $120,000 and a total of $36,000 of manufacturing overhead costs were incurred. Ending work in process was $82,000 and ending finished goods was $35,000. Goods were sold to customers during the year for $360,000. How much gross margin would be reported for the year?
A) $110,000
B) $145,000
C) $125,000
D) $171,000

Question

Quizplus · Accepted Answer

To calculate the gross margin, we first need to determine the cost of goods sold (COGS). COGS is calculated as follows:1. Beginning Raw Materials + Purchases - Ending Raw Materials = Raw Materials Used   $42,000 + $60,000 - $16,000 = $86,0002. Raw Materials Used + Direct Labor + Manufacturing Overhead = Total Manufacturing Costs   $86,000 + $120,000 + $36,000 = $242,0003. Total Manufacturing Costs + Beginning Work in Process - Ending Work in Process = Cost of Goods Manufactured   $242,000 + $90,000 - $82,000 = $250,0004. Cost of Goods Manufactured + Beginning Finished Goods - Ending Finished Goods = Cost of Goods Sold   $250,000 + $20,000 - $35,000 = $235,000Finally, Gross Margin = Sales - COGS$360,000 - $235,000 = $125,000

Tisdale Company Started the Year with the Following Beginning Account