Roberts 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 other answers are correct.

Question

Quizplus · Accepted Answer

Under absorption costing, the cost of goods sold includes both variable and fixed production costs. The cost per unit is $4 (variable) + $6.50 (fixed, calculated as $260,000/40,000 units) = $10.50. The cost of goods sold for 37,000 units is 37,000 x $10.50 = $388,500. Sales revenue is 37,000 x $15 = $555,000. Gross margin is $555,000 - $388,500 = $166,500.