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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
    Fixed administrative expenses 55,000
    Variable administrative expenses 15,000

    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.

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    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.

    $2.19

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