Question

Friday Night, Inc. manufactures high-quality 5-liter boxes of wine which it sells for $14 per box. Below is some information related to Friday Night's capacity and budgeted fixed manufacturing costs for 2019:

	Budgeted Fixed	Days of	Hours of
Denominator-Level	Manufacturing	Production	Production	Boxes
Capacity Concept	Overhead per Period	per Period	per Day	per Hour
Theoretical capacity	$2,500,000	362	22	300
Practical capacity	$2,500,000	310	16	250
Normal capacity	$2,500,000	310	16	175
Master budget capacity	$2,500,000	310	16	200

Production during 2019 was 990,000 boxes of wine, with 15,000 remaining in ending inventory at 12/31/19. Actual variable manufacturing costs were $1,762,200 (there are no variable cost variances). Actual fixed manufacturing overhead costs were $2,500,000. Fixed manufacturing overhead cost variances are written off to cost of goods sold in the period in which they occur. What is gross margin under master budget capacity? Hint: don't forget the production-volume variance.

	a.	$9,452,300
	b.	$9,430,250
	c.	$9,457,700
	d.	$9,444,800

Answer 1

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Friday Night, Inc.
Calculation of fixed overhead absorption rate:	Amount $
Days of production	310.00
Hours of production	16.00
Boxes per Hour	200.00
Master Budget production	992,000.00
Budgeted Fixed manufacturing overhead	2,500,000.00
Fixed overhead absorption rate	2.52
Actual production	990,000.00
Fixed overhead absorption rate	2.52
Fixed overhead absorbed	2,494,959.68
Under absorbed	5,040.32
Actual production	990,000.00
Ending inventory	15,000.00
Units sold	975,000.00
Fixed overhead absorption rate	2.52
Fixed overhead absorbed on cost of goods sold	2,457,157.26
Actual production	990,000.00
Actual variable manufacturing costs	1,762,200.00
Actual variable manufacturing costs per unit	1.78
Units sold	975,000.00
Actual variable manufacturing costs per unit	1.78
Actual variable manufacturing costs of goods sold	1,735,500.00
Units sold	975,000.00
Sell price per unit	14.00
Sale value	13,650,000.00
Gross margin	Amount $
Sale value	13,650,000.00
Less:
Actual variable manufacturing costs of goods sold	1,735,500.00
Fixed overhead absorbed on cost of goods sold	2,457,157.26
Under absorbed Fixed overhead	5,040.32
Gross margin	9,452,302.42

So answer is option A. $ 9,452,300 (rounded off)