Question

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
Selling price $131
Units in beginning inventory 0
Units produced 2,940
Units sold 2,740
Units in ending inventory 200
Variable cost per unit:
Direct materials $44
Direct labor $19
Variable manufacturing overhead $13
Variable selling and administrative $12
Fixed costs:
Fixed manufacturing overhead $85,260
Fixed selling and administrative expenses $16,440
The total gross margin for the month under absorption costing is?

Answer 1

Answer:

$71,240

Explanation:

The computation of the total gross margin under absorption costing is shown below:

As we know that

Gross Margin = Sales - Variable Manufacturing Cost - Fixed Manufacturing Overhead For Units Sold

Sales (2,740 units × $131) $358,940

Less Manufacturing Costs  

Direct Materials (2,740 units × $44) $120,560

Direct Labor (2,740 units × $19) $52,060

Variable Manufacturing Overhead (2,740 units × $13) $35,620

Fixed Manufacturing Overhead ($85,260 ÷ 2,740 units ÷ 2,940 units) $79,460

Gross Margin                         $71,240

We simply applied the above formula