Question

Assume the following information for a company that produced 10,000 units and sold 8,000 units during its first year of operations and produced 8,000 units and sold 10,000 units during its second year of operations:

	Per Unit					Per Year
Selling price		$	200
Direct materials		$	82
Direct labor		$	50
Variable manufacturing overhead		$	10
Sales commission		$	8
Fixed manufacturing overhead						$	300,000

Using absorption costing, what is the cost of goods sold for the second year of operations?

Multiple Choice

• $1,780,000

• $1,795,000

• $1,406,000

• $1,486,000

Answer 1

CORRECT OPTION A I.E. $1,780,000
Calculate Unit Product cost for Year 1
Unit Product Cost	172.00
Direct Material	82.00
Direct Labour	50.00
Manufacturing OH (Variable)	10.00
Fixed Manufacturing OH (Per Unit)	30.00
(Fixed Manufacturing OH / Units Produced)
Total Product Cost	172.00
Calculate Unit Product cost for Year 2
Unit Product Cost	179.50
Direct Material	82.00
Direct Labour	50.00
Manufacturing OH (Variable)	10.00
Fixed Manufacturing OH (Per Unit)	37.50
(Fixed Manufacturing OH / Units Produced)
Total Product Cost	179.50
Calculation of cost of goods sold
Beg. Inventory	344,000
Add: units sold	1,795,000
Less: Ending Inventory	(359,000)
Cost of goods sold	1,780,000