Walsh Company produces a single product. Last year, the company manufactured 25,000 units and sold 22,000 units. Production costs were as follows: Sales totaled $440,000, variable selling and administrative expenses were $110,000, and fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labor is a variable cost.
-Under absorption costing, the gross margin would be:
A) $176,000
B) $242,000
C) $66,000
D) $21,000

Question

Walsh Company produces a single product. Last year, the company manufactured 25,000 units and sold 22,000 units. Production costs were as follows:  Sales totaled $440,000, variable selling and administrative expenses were $110,000, and fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labor is a variable cost.
-Under absorption costing, the gross margin would be:
A) $176,000 
B) $242,000 
C) $66,000 
D) $21,000

Quizplus · Accepted Answer

Under absorption costing, gross margin is calculated by subtracting the cost of goods sold (including fixed manufacturing overhead) from sales revenue. The correct choice is $176,000.

Walsh Company Produces a Single Product