**Preparing Financial Statements for Kramerica Publishing**Jose Sanchez is assisting in the preparation of financial statements for Kramerica Publishing, a company specializing in books about coffee tables.**Assumed Information for the Most Recent Period:**- **Unadjusted Cost of Goods Sold (prior to adjustments):** $600,000- **Sales:** $850,000- **Actual Manufacturing Overhead:** $70,000- **Applied Manufacturing Overhead:** $72,000Given that Kramerica Publishing uses the "Direct Write-Off Method" to eliminate any underapplied or overapplied overhead, determine the amount of gross margin that will appear on Kramerica's income statement after adjustments.**Gross Margin Calculation**To calculate the gross margin, the following steps are required:1. **Identify the Overapplied or Underapplied Overhead:** - Compare the actual manufacturing overhead with the applied manufacturing overhead. - $72,000 (Applied) - $70,000 (Actual) = $2,000 Overapplied.2. **Adjust the Cost of Goods Sold by the Overapplied/Underapplied Overhead:** - Since overhead is overapplied, reduce the unadjusted cost of goods sold by $2,000. - $600,000 - $2,000 = $598,000 (Adjusted Cost of Goods Sold).3. **Calculate Gross Margin:** - Subtract the adjusted cost of goods sold from the sales. - Gross Margin = $850,000 - $598,000 = $252,000.**Explanation:** In this scenario, Kramerica Publishing's gross margin, after adjusting for the overapplied manufacturing overhead using the Direct Write-Off Method, amounts to $252,000.

Gross margin is revenue less the cost of goods sold. Under the direct-write-off method,…

Jose Sanchez is assisting to prepare financial statements for Kramerica Publishing, a company that publishes books about coffee tables. Assume the following information for the most recent period: Unadjusted Cost of Goods Sold (prior to adjustments) Sales Actual Manufacturing Overhead Applied Manufacturing Overhead $600,000 $850,000 $70,000 $72,000 Given that Kramerica Publishing uses the "Direct Write-Off Method" to eliminate any underapplied or overapplied overhead, determine the amount of gross margin that will appear on Kramerica's income statement after adjustments. Gross margin $

Jose Sanchez is assisting to prepare financial statements for Kramerica Publishing, a company that publishes books about coffee tables. Assume the following information for the most recent period: Unadjusted Cost of Goods Sold (prior to adjustments) Sales Actual Manufacturing Overhead Applied Manufacturing Overhead $600,000 $850,000 $70,000 $72,000 Given that Kramerica Publishing uses the "Direct Write-Off Method" to eliminate any underapplied or overapplied overhead, determine the amount of gross margin that will appear on Kramerica's income statement after adjustments. Gross margin $

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Question

**Preparing Financial Statements for Kramerica Publishing**

Jose Sanchez is assisting in the preparation of financial statements for Kramerica Publishing, a company specializing in books about coffee tables.

**Assumed Information for the Most Recent Period:**

- **Unadjusted Cost of Goods Sold (prior to adjustments):** $600,000
- **Sales:** $850,000
- **Actual Manufacturing Overhead:** $70,000
- **Applied Manufacturing Overhead:** $72,000

Given that Kramerica Publishing uses the "Direct Write-Off Method" to eliminate any underapplied or overapplied overhead, determine the amount of gross margin that will appear on Kramerica's income statement after adjustments.

**Gross Margin Calculation**

To calculate the gross margin, the following steps are required:

1. **Identify the Overapplied or Underapplied Overhead:**
- Compare the actual manufacturing overhead with the applied manufacturing overhead.
- $72,000 (Applied) - $70,000 (Actual) = $2,000 Overapplied.

2. **Adjust the Cost of Goods Sold by the Overapplied/Underapplied Overhead:**
- Since overhead is overapplied, reduce the unadjusted cost of goods sold by $2,000.
- $600,000 - $2,000 = $598,000 (Adjusted Cost of Goods Sold).

3. **Calculate Gross Margin:**
- Subtract the adjusted cost of goods sold from the sales.
- Gross Margin = $850,000 - $598,000 = $252,000.

**Explanation:**
In this scenario, Kramerica Publishing's gross margin, after adjusting for the overapplied manufacturing overhead using the Direct Write-Off Method, amounts to $252,000.

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