Question

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

	Selling price...............................................	$63
	Units in beginning inventory.....................	0
	Units produced..........................................	1,500
	Units sold...................................................	1,100
	Units in ending inventory..........................	400
	Variable costs per unit:
	Direct materials.......................................	$14
	Direct labor.............................................	$15
	Variable manufacturing overhead...........	$1
	Variable selling and administrative.........	$7
	Fixed costs:
	Fixed manufacturing overhead...............	$16,500
	Fixed selling and administrative.............	$5,500

        1.    The total contribution margin for the month under the variable costing approach is:

$24,200

$28,600

$36,300

$12,10 2. The total gross margin for the month under the absorption costing approach is: $28,600 $11,000 $40,600 $24,200

Answer 1

1. Calculation of contribution margin under variable costing.

Under variable costing, all the variable expenses will be considered and fixed expenses will be taken after contribution margin for net profit.

Particulars	Amount
sales (63 x 1,100)	69,300
Less: Variable Cost
Materials (1,100 x 14)	15,400
Labor (15 x 1,100)	16,500
Variable Manufacturing (1 x 1,100)	1,100
Variable Selling & Admin (7 x 1,100)	7,700
Contribution Margin	28,600

2. Gross Margin under absorption costing

Under absorption costing fixed manufacturing overheads as included for contribution margin but selling & admin expenses are taken below the contribution margin for profit.

Particulars	Amount
Sales (1,100 x 63)	69,300
Less: Manufacturing Costs
Materials (1,100 x 14)	15,400
Labor (1,100 x 15)	16,500
Variable Manufacturing Overheads (1,100 x 1)	1,100
Fixed Overheads (16,500 / 1,500 x 1,100)	12,100
Gross Margin	24,200

ANSWE is B for first part & D for second part