Homework Answers
| Ans. A | Particulars | Amount | Amount | |
| Sales | $3,000,000 | |||
| Less: Cost of goods sold: | ||||
| Direct material | $900,000 | |||
| Direct labor | $700,000 | |||
| Factory overhead | $700,000 | |||
| Total cost of goods sold | $2,300,000 | |||
| Gross margin | $700,000 | |||
| Less: General and Administrative expenses | $300,000 | |||
| Net income | $400,000 | |||
| Ans. B | If materials cost reduced by $200,000, then the new net income will be calculated | |||
| as follows: | ||||
| Particulars | Amount | Amount | ||
| Sales | $3,000,000 | |||
| Less: Cost of goods sold: | ||||
| Direct material ($900,000 - $200,000) | $700,000 | |||
| Direct labor | $700,000 | |||
| Factory overhead | $700,000 | |||
| Total cost of goods sold | $2,100,000 | |||
| Gross margin | $900,000 | |||
| Less: General and Administrative expenses | $300,000 | |||
| Net income | $600,000 | |||
| Increase in Net income ($600,000 - $400,000) = $200,000 | ||||
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