A company has the following information for its first month of operations: $$\begin{array} { l r }
\text { Raw materials used } & \$ 37,500 \
\text { Sales } \$ 97.50 \text { per unit) } & \$ 117,000 \
\text { Direct labor } & \$ 63,000 \
\text { Variable factory overhead } & \$ 25,500 \
\text { Fixed factory overhead } & \text { unknown } \
\text { Variable selling and administrative } & \$ 4,500 \
\text { Fixed selling and administrative } & \$ 7,500 \
\text { Gross profit } & \$ 35,000 \
\text { Contribution margin } & \text { unknown }
\end{array}$$ The company sold half of the units it produced.____ is the cost of goods sold under absorption costing.
A)$45,000
B)$117,000
C)$82,000
D)$63,000

Question

A company has the following information for its first month of operations: $$\begin{array} { l r } 
\text { Raw materials used } & \$ 37,500 \
\text { Sales } \$ 97.50 \text { per unit) } & \$ 117,000 \
\text { Direct labor } & \$ 63,000 \
\text { Variable factory overhead } & \$ 25,500 \
\text { Fixed factory overhead } & \text { unknown } \
\text { Variable selling and administrative } & \$ 4,500 \
\text { Fixed selling and administrative } & \$ 7,500 \
\text { Gross profit } & \$ 35,000 \
\text { Contribution margin } & \text { unknown }
\end{array}$$ The company sold half of the units it produced.____ is the cost of goods sold under absorption costing.
A)$45,000
B)$117,000
C)$82,000
D)$63,000

Quizplus · Accepted Answer

The cost of goods sold (COGS) under absorption costing includes all manufacturing costs: direct materials, direct labor, and both variable and fixed factory overhead. Given the information, we calculate COGS as follows: Raw materials used ($37,500) + Direct labor ($63,000) + Variable factory overhead ($25,500). Fixed factory overhead is not provided, but it's not needed to choose from the given options since none of the options would include an unknown fixed factory overhead. However, the calculation provided does not directly lead to the correct answer because we are missing a step regarding the production and sales quantities. The correct approach involves understanding that the company sold half of the units it produced, implying that the cost of goods sold would include costs associated with producing those sold units. Without the exact number of units produced and sold or the fixed overhead cost, we cannot accurately calculate COGS directly from the given data. The provided calculation was incorrect in assuming we could directly calculate COGS without considering the production and sales relationship or fixed overhead costs. The correct answer involves understanding the full context of absorption costing and the information provided, which was misinterpreted in the initial explanation.

A Company Has the Following Information for Its First Month