Panda, which began business at the start of 2012, had the following data: Planned and actual production: 100,000 units
Sales: 80,000 units at $20 per unit
Production costs: Variable $6 per unit; Fixed $300,000
Selling and administrative costs: Variable $1 per unit; Fixed $32,000
The gross margin that Panda Company would disclose on its 2012 absorption-costing income statement is:
A)$0.
B)$700,000.
C)$880,000.
D)$1,300,000.
E)$1,600,000.

Question

Quizplus · Accepted Answer

To calculate the gross margin using absorption costing method, we need to first calculate the cost of goods sold (COGS) as follows:

Total production costs = variable production costs + fixed production costs 
Total production costs = ($6 per unit x 100,000 units) + $300,000 
Total production costs = $900,000

Therefore, COGS = Total production costs / number of units produced 
COGS = $900,000 / 100,000 units 
COGS = $9 per unit

Next, we can calculate the gross margin using the following formula:

Gross margin = Sales - COGS

Gross margin = ($20 per unit x 80,000 units) - ($9 per unit x 80,000 units) 
Gross margin = $1,600,000 - $720,000 
Gross margin = $880,000

Therefore, the correct answer is C) $880,000.

Panda, Which Began Business at the Start of 2012, Had