You just closed the month for a mid-sized industrial manufacturer and the controller flags that the management P&L does not match the ERP-based gross margin report. The CFO wants a same-day explanation before the operating review, and you only have the summarized trial balance, the subledger extracts, and the prior month close package. You need to determine whether the variance is a timing issue, a classification error, or a true performance change, and explain what you would do next.
| Metric | Amount |
|---|---|
| Management report revenue | $128,400,000 |
| ERP revenue | $128,400,000 |
| Management report COGS | $92,100,000 |
| ERP COGS | $89,700,000 |
| Freight-out booked in COGS on management report | $1,100,000 |
| Inventory reserve adjustment booked in COGS on management report | $900,000 |
| Standard cost revaluation posted in ERP COGS only | $1,600,000 |
| Prior month gross margin | 30.1% |
How would you reconcile the discrepancy, quantify the true gross margin for the month, and explain the issue to the CFO in a way that distinguishes reporting error from underlying operating performance?