Gotcha Covered is a start-up company that helps busy parents by providing science kits for their children. Its !rst product is a kit for building a 3-D model of an atom. Raw materials for this 3-D atom model kit include foam balls and strong, yet bendable, wire. On December 31, 2024, Gotcha Covered reported the following for the Inventory section of its balance sheet.

RM Inventory $2,000

WIP Inventory $4,500

FG Inventory $10,500

Total $17,000

The first few items from the companys income statement are as follows.

Sales $258,000

Cost of Goods Sold $195,000

Gross Margin $63,000

Required

a. If Gotcha Covered desires a gross margin of 40%, is the company achieving its goal?

b. What might the company consider doing in order to increase its gross margin percentage? Describe at least two specifc options and explain how each option could positively and negatively affect the companys performance.

c.It is now one year later (2025). The following information summarizes the key product-related transactions throughout the year.

Total material purchases $145,000

Total direct materials used in production $138,500

Total direct labor costs $40,000

Total applied MOH $25,000

COGM $190,000

Cost of Goods Sold $180,000

Sales $265,000

Present the Inventory section of the balance sheet for 2025, as well as the partial income statement through gross margin for the year ended December 31, 2025.

d. What gross margin percentage did the company earn in 2025? Did it reach its goal or make progress toward its goal of 40%?

e.Assuming total sales volume was the same from 2024 to 2025, what can you say about the trend in the companys product costs?