Riverton Corp., 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:
A)$97,500.
B)$147,000.
C)$166,500.
D)$370,000.
E)None of the answers is correct.

Question

Quizplus · Accepted Answer

Under absorption costing, the cost of goods sold includes both variable and fixed production costs. The gross margin is calculated as sales revenue minus the cost of goods sold. Sales revenue is 37,000 units * $15 = $555,000. The cost of goods sold is calculated as follows: Variable production cost per unit is $4, and fixed production cost per unit is $260,000 / 40,000 units = $6.50. Total production cost per unit is $10.50. Therefore, cost of goods sold for 37,000 units is 37,000 * $10.50 = $388,500. Gross margin is $555,000 - $388,500 = $166,500.