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# Compute the Gross Margin and Contribution Margin

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The following information has been provided by the Evans Retail Stores, Inc., for the first quarter of the year:

Sales \$350,000
Variable selling expense 35,000
Fixed selling expenses 25,000
Cost of goods sold (variable) 160,000

The gross margin of Evans Retail Stores, Inc. for the first quarter is:
A) \$210,000.
B) \$140,000.
C) \$220,000.
D) \$190,000.

The contribution margin of Evans Retail Stores, Inc. for the first quarter is:
A) \$300,000.
B) \$140,000.
C) \$210,000.
D) \$190,000.

The total contribution margin decreases if sales volume remains the same and:
A) fixed expenses increase.
B) fixed expenses decrease.
C) variable expense per unit increases.
D) variable expense per unit decreases.

#### Solution Preview

The gross margin of Evans Retail Stores, Inc. for the first quarter is:
A) \$210,000.
B) \$140,000.
C) \$220,000.
D) \$190,000.

The gross margin, a measure under absorption accounting, is the excess of sales revenues over the cost of goods sold. In this case, the gross margin is:

Sales \$350,000
Cost of goods sold (variable) 160,000
Gross margin 190,000 (\$350,000-\$160,000) Answer D

The contribution margin of Evans Retail ...

#### Solution Summary

This solution illustrates how to compute the gross margin and contribution, and discusses the effect of changes in fixed and unit variable costs on the contribution margin.

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