During the current period, 20,000 units were produced and 17,000 units were sold. Fixed manufacturing costs incurred amounted to $40,000.
- If variable production costs were $100,000, an absorption costing income statement would report the variable manufacturing costs as a:
A) part of cost of goods sold.
B) $85,000 deduction from sales revenue to obtain contribution margin.
C) $100,000 deduction from sales revenue to obtain contribution margin.
D) $100,000 deduction from sales revenue to obtain gross profit.

Question

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs (both fixed and variable) are assigned to units produced. Therefore, variable manufacturing costs are included in the cost of goods sold (COGS) when the units are sold. Since not all units produced were sold, only the cost associated with the units sold (17,000 out of 20,000) would be part of COGS.

During the Current Period, 20,000 Units Were Produced and 17,000