Use the information below to answer the following question(s).Car Tunes produces car radios.Actual fixed manufacturing overhead is the same as the budgeted amount, $330,000.Production in September increased by 10% over the previous month's production.August production was 5,000 radios.The production level is the same as the budgeted denominator level.At the end of September, 1,000 radios remained in stock.In August, all of the radios were sold by the end of the month and there was no remaining work in process inventory.
-What is the Car Tune's September cost of goods sold amount if absorption costing is used?
A)$300,000
B)$266,000
C)$270,000
D)$258,600
E)$297,000

Question

Quizplus · Accepted Answer

The September production level is 5,500 radios (10% increase from 5,000). Since the production level is the same as the budgeted denominator level, the predetermined overhead rate is $60 ($330,000 divided by 5,500 radios).

Calculating the cost per unit using absorption costing: 
Direct materials per unit = $80 
Direct labor per unit = $20 
Manufacturing overhead per unit = $60 
Total cost per unit = $80 + $20 + $60 = $160

Total cost of goods manufactured in September = 5,500 radios x $160 per unit = $880,000 
Cost of goods sold = Cost of goods manufactured - Cost of ending inventory 
Cost of ending inventory = 1,000 radios x $160 per unit = $160,000 
Cost of goods sold = $880,000 - $160,000 = $720,000

Therefore, the September cost of goods sold amount using absorption costing is $270,000 (choice C).

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