Question

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

Selling price	$	126
Units in beginning inventory		0
Units produced		2,630
Units sold		2,500
Units in ending inventory		130
Variable costs per unit:
Direct materials	$	49
Direct labor	$	17
Variable manufacturing overhead	$	8
Variable selling and administrative expense	$	9
Fixed costs:
Fixed manufacturing overhead	$	84,160
Fixed selling and administrative expense	$	17,500

The total gross margin for the month under absorption costing is:

Multiple Choice

$96,700

$50,000

$10,000

$107,500

Answer 1

Correct Answer--$50,000

Calculations

Working note 1
Total Fixed Manufacturing Overheads	$    84,160.00
Units Produced	2630
Cost per unit produced	$ 32.00
Fixed cost assigned to goods sold (2500 x 32)	$    80,000.00
Fixed cost assigned to Ending Inventory (130 x 32)	$      4,160.00

Working note 2   Cost of goods sold
Direct material	$ 122,500.00
Direct labor	$    42,500.00
Variable manufacturing overheads	$    20,000.00
Fixed manufacturing overheads	$    80,000.00
Total Cost of Goods sold	$ 265,000.00

Income Statement (Partial)
Absorption costing
Sales	$      315,000.00
Cost of Goods sold	$      265,000.00
Gross profit	$        50,000.00