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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Use the following information for Multiple-Choice Questions 2-3 and 2-4:

Wachman Company produces a product with the following per-unit costs:

Chapter 2, Problem 4MCQ, Use the following information for Multiple-Choice Questions 2-3 and 2-4: Wachman Company produces a

Last year, Wachman produced and sold 2,000 units at a price of $75 each. Total selling and administrative expense was $30,000.

2-4    Refer to the information for Wachman Company on the previous page. Total gross margin for last year was

  1. a. $40,000.
  2. b. $70,000.
  3. c. $80,000.
  4. d. $88,000.
  5. e. $100,000.

To determine

Calculate the amount of gross margin.

Explanation

Gross Margin:

Gross margin can be defined as the difference between the sales revenue and COGS (cost of goods sold). It refers to the amount of money that the firm is earning over and above the amount of cost of sold units.

b.

Use the following formula to calculate the gross margin:

Gross margin=Sales revenueCOGS

Substitute $150,000 for sales revenue and $80,000 for COGS in the above formula.

Gross margin=$150,000$80,000=$70,000

The amount of gross margin is $70,000. Therefore, this option is correct.

Working Notes:

Calculation of sales revenue:

Sales revenue=Units produced and sold×Selling price=2,000units×$75=$150,000

Hence, the amount of sales revenue is $150,000

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