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)some other amount.

Question

Quizplus · Accepted Answer

To calculate the gross margin using absorption costing, we need to subtract the cost of goods sold (COGS) from the sales revenue. The COGS includes both the variable and fixed production costs, which are absorbed into the inventory and then recognized as an expense when the inventory is sold.
Total COGS = (Variable cost per unit + Fixed cost per unit) x Number of units sold
= ($30 + $20) x 10,500 = $525,000
Sales revenue = $691,500
Gross margin = $691,500 - $525,000 = $166,500

The Gross Margin That the Company Would Disclose on an Absorption-Costing