Pennsylvania Company provided the following information regarding its only product--skateboards. $$\begin{array} { l r }
\text { Direct materials used } & \$ 200,000 \
\text { Direct labor } & 80,000 \
\text { Fixed overhead } & 100,000 \
\text { Fixed selling and administrative costs } & 190,000 \
\text { Variable overhead } & 20,000 \
\text { Variable selling and administrative } & 90,000 \
\text { Selling unit price } & 70 \\
\text { Units produced and sold } &10,000 \
\end{array}$$ _____ is the gross margin if the absorption approach is used.
A)$300,000
B)$390,000
C)$470,000
D)$450,000

Question

Pennsylvania Company provided the following information regarding its only product--skateboards. $$\begin{array} { l r } 
\text { Direct materials used } & \$ 200,000 \
\text { Direct labor } & 80,000 \
\text { Fixed overhead } & 100,000 \
\text { Fixed selling and administrative costs } & 190,000 \
\text { Variable overhead } & 20,000 \
\text { Variable selling and administrative } & 90,000 \
\text { Selling unit price } & 70 \\
\text { Units produced and sold } &10,000 \
\end{array}$$ _____ is the gross margin if the absorption approach is used.
A)$300,000
B)$390,000
C)$470,000
D)$450,000

Quizplus · Accepted Answer

The gross margin under the absorption costing approach includes all manufacturing costs (direct materials, direct labor, and both variable and fixed overhead) in the cost of goods sold but excludes selling and administrative expenses. Calculation: Sales - Cost of Goods Sold (COGS) = Gross Margin. Sales = 10,000 units * $70/unit = $700,000. COGS = Direct materials ($200,000) + Direct labor ($80,000) + Fixed overhead ($100,000) + Variable overhead ($20,000) = $400,000. Gross Margin = Sales - COGS = $700,000 - $400,000 = $300,000.

Pennsylvania Company Provided the Following Information Regarding Its Only Product--Skateboards