Irina Inc., which began business at the start of the current year, had the follo

ID: 2562717 • Letter: I

Question

Irina Inc., which began business at the start of the current year, had the following data:

Planned and actual production: 40,000 units

Sales: 37,000 units at $15 per unit

Production costs:

Variable: $4 per unit

Fixed: $260,000

Selling and administrative costs:

Variable: $1 per unit

Fixed: $32,000

The gross margin that the company would disclose on an absorption-costing income statement is:

$97,500

$147,000

$165,000

$370,000

Some other amount

Planned and actual production: 40,000 units

Sales: 37,000 units at $15 per unit

Production costs:

Variable: $4 per unit

Fixed: $260,000

Selling and administrative costs:

Variable: $1 per unit

Fixed: $32,000

Gross margin = Sales - Cost of goods sold

Sales = 37000 * $15 = $555000

Cost of goods sold = Cost of goods produced - Closing stock

Cost of goods produced =(40000*$4) + $260000

= $160000 + $260000

= $420000

Closing stock = $420000/40000 * 3000

= $31500

Gross margin = $555000 - ($420000 - $31500)

= $555000 - $388500

= $166500

Gross margin is $166500

Option E is correct

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