Arianell, Inc. reports the following information for August: $$\begin{array} { | l | r | }
\hline \text { Sales Revenue } & \$ 800,000 \
\hline \text { Variable Cost of Goods Sold } & 110,000 \
\hline \text { Fixed Cost of Goods Sold } & 45,000 \
\hline \text { Variable Selling and Administrative Costs } & 100,000 \
\hline \text { Fixed Selling and Administrative Costs } & 70,000 \
\hline
\end{array}$$ Calculate the gross profit for August using absorption costing.
A) $730,000
B) $700,000
C) $690,000
D) $645,000

Question

Arianell, Inc. reports the following information for August: $$\begin{array} { | l | r | } 
\hline \text { Sales Revenue } & \$ 800,000 \
\hline \text { Variable Cost of Goods Sold } & 110,000 \
\hline \text { Fixed Cost of Goods Sold } & 45,000 \
\hline \text { Variable Selling and Administrative Costs } & 100,000 \
\hline \text { Fixed Selling and Administrative Costs } & 70,000 \
\hline
\end{array}$$ Calculate the gross profit for August using absorption costing.
A) $730,000
B) $700,000
C) $690,000
D) $645,000

Quizplus · Accepted Answer

Gross profit under absorption costing is calculated by subtracting the cost of goods sold (COGS) from sales revenue. COGS under absorption costing includes both variable and fixed production costs. Therefore, COGS = Variable Cost of Goods Sold + Fixed Cost of Goods Sold = $110,000 + $45,000 = $155,000. Gross profit = Sales Revenue - COGS = $800,000 - $155,000 = $645,000.

Arianell, Inc Calculate the Gross Profit for August Using Absorption Costing