What is the gross margin for a facility with $5,000 in inventory, $7,000 in new inventory, $13,000 in sales, and ending inventory of $3,000?

What is the gross margin for a facility with $5,000 in inventory, $7,000 in new inventory, $13,000 in sales, and ending inventory of $3,000?

• A. $5,000
• B. $2,000
• C. $4,000
• D. $3,000

Answer: (C)

To determine the gross margin, it is important to first understand the relationship between sales, cost of goods sold (COGS), and gross margin. Gross margin is calculated using the formula: Gross Margin = Sales - Cost of Goods Sold (COGS) To find COGS, you need to consider the inventory. The formula to calculate COGS in this case is: COGS = Beginning Inventory + Purchases - Ending Inventory In this scenario, the beginning inventory is $5,000, new inventory (purchases) is $7,000, and the ending inventory is $3,000. Plugging these values into the formula gives: COGS = $5,000 + $7,000 - $3,000 COGS = $9,000 Now, we can calculate the gross margin using the sales figure provided: Sales = $13,000 So, Gross Margin = $13,000 - $9,000 = $4,000. This calculation confirms that the correct answer is indeed $4,000, reflecting the difference between the revenue generated from sales and the cost incurred to produce those goods. Understanding this relationship is crucial for assessing a facility's profitability.

To determine the gross margin, it is important to first understand the relationship between sales, cost of goods sold (COGS), and gross margin.

Gross margin is calculated using the formula:

Gross Margin = Sales - Cost of Goods Sold (COGS)

To find COGS, you need to consider the inventory. The formula to calculate COGS in this case is:

COGS = Beginning Inventory + Purchases - Ending Inventory

In this scenario, the beginning inventory is $5,000, new inventory (purchases) is $7,000, and the ending inventory is $3,000. Plugging these values into the formula gives:

COGS = $5,000 + $7,000 - $3,000

COGS = $9,000

Now, we can calculate the gross margin using the sales figure provided:

Sales = $13,000

So, Gross Margin = $13,000 - $9,000 = $4,000.

This calculation confirms that the correct answer is indeed $4,000, reflecting the difference between the revenue generated from sales and the cost incurred to produce those goods. Understanding this relationship is crucial for assessing a facility's profitability.