A manufacturing company that produces a single product has provided the followin

Question

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations Selling price Units Units produced Units sold Units in ending inventory Variable costs per unit: in beginning inventory 2,900 2,500 400 Directmaterials Direct labor Variable manufacturing overhead Variable selling and administrative expense 32 45 2 Fixed costs: Fixed manufacturing overhead Fixed selling and administrative expense $43,500 $15,000 The total gross margin for the month under absorption costing is

Explanation / Answer

Calculation of gross margin under absorption costing

Particulars

Amount

Amount

Sales (2,500*$117)

$292,500

Less: costs

Direct material (32*2900)

$92,800

Direct Labour (45*2900)

$130,500

Variable manufacturing overheads (2*2900)

$5,800

Fixed manufacturing overheads

$43,500

Total production costs

$272,600

Per unit costs (272,600/2900)

$94

Add: ending inventory (94*400)

$37,600

Gross margin

$57,500

Option (D) $57,500 is correct

Calculation of gross margin under absorption costing

Particulars

Amount

Amount

Sales (2,500*$117)

$292,500

Less: costs

Direct material (32*2900)

$92,800

Direct Labour (45*2900)

$130,500

Variable manufacturing overheads (2*2900)

$5,800

Fixed manufacturing overheads

$43,500

Total production costs

$272,600

Per unit costs (272,600/2900)

$94

Add: ending inventory (94*400)

$37,600

Gross margin

$57,500

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