Question

Gabuat Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price	$ 147
Units in beginning inventory	0
Units produced	2,200
Units sold	1,910
Units in ending inventory	290

Variable costs per unit:
Direct materials	$ 47
Direct labor	$ 34
Variable manufacturing overhead	$ 5
Variable selling and administrative expense	$ 6
Fixed costs:
Fixed manufacturing overhead	$39,600
Fixed selling and administrative expense	$15,280

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

Answer 1

Calculation of Total Gross Margin for Gabuat Corporation using Absorption Costing Approach

Particulars	Amount
Sales Revenue	280,770
Less: Cost of Goods Sold	(198,640)
Gross Margin	82,130
Less:Selling and Administrative Expenses
Variable Selling and Administrative Expenses	(11,460)
Fixed Selling and Administrative Expenses	(15,280)
Operating Income / (Loss)	55,390

Gross Margin for the Month = $ 82,130

Operating Income for the Month = $ 55,390

Notes

Particulars	Amount
Direct Materials Cost per Unit	47
Add: Direct Labour Cost per Unit	34
Add: Variable Manufacturing Overhead per Unit	5
Add: Fixed Manufacturing Overhead per Unit	18
Unit Product Cost as per Absorption Costing	104

Particulars	Amount
Fixed Manufacturing Overhead	39,600
÷ Number of Units Produced	2,200
Fixed Manufacturing Overhead per Unit	18

Particulars	Amount
Sales Price per Unit	147
* Units Sold	1,910
Sales Revenue	280,770

Particulars	Amount
Units Sold	1,910
* Unit Product Cost as per Absorption Costing	104
Cost of Goods Sold	198,640

Variable Selling and Administrative Expenses = 1,910 Units * $ 6 per Unit= $ 11,460