Question

Winter Company has no beginning and ending inventories, and reports the following data about its only product: Direct materials used $200,000 Direct labor $80,000 Fixed indirect manufacturing $100,000 Fixed selling and administrative $300,000 Variable indirect manufacturing $20,000 Variable selling and administrative $60,000 Selling price(per unit) $150 Units produced and sold 10,000 Winter Company uses the absorption approach to prepare the income statement. What is the gross margin

Answer 1

Answer:

Gross profit= $1,100,000

Explanation:

Giving the following information:

Direct materials used $200,000

Direct labor $80,000

Fixed indirect manufacturing $100,000

Fixed selling and administrative $300,000

Variable indirect manufacturing $20,000

Variable selling and administrative $60,000

Selling price(per unit) $150

Units produced and sold 10,000

Under the absorption costing method, the cost of goods sold includes the fixed manufacturing overhead.

The gross profit is calculated as follow:

Gross profit= sales revenue - cost of goods sold

Cost of goods sold= direct material + direct labor + total allocated overhead

COGS= 200,000 + 80,000 + 20,000 + 100,000= 400,000

Gross profit= 10,000*150 - 400,000= 1,100,000

We will determine the income statement:

Sales= 1,500,000

COGS= (400,000)

Gross profit= 1,100,000

Fixed selling and administrative= (300,000)

Variable selling and administrative= (60,000)

Net operating profit= 740,000

Answer 2

Answer: $1,100,000

Explanation:

Direct materials = $200,000

Direct labor = $80,000

Fixed indirect manufacturing overhead= $100,000

Fixed selling and administrative = $300,000

Variable indirect manufacturing = $20,000

Variable selling and administrative cost = $60,000

Selling price(per unit) = $150

Total Units produced and sold = 10,000

Total revenue from sales = selling price(per unit) × total units sold

Total sales revenue =$150×10000 = $1,500,000

Under Absorption costing, fixed cost and variable cost have all be incorporated into the cost of goods.

Therefore, cost of goods sold is given by ;

Direct labor cost +direct material cost + fixed indirect manufacturing overhead + variable indirect manufacturing cost

Therefore,

Gross margin = (sales revenue - cost of goods sold)

Cost of goods sold = $(200,000+80,000+100,000+20,000) = $400,000

Gross margin = $(1,500,000 - 400,000) = $1,100,000