Costmore Manufacturing has provided the following operating results for its first year operations:
$\begin{array}{lr}
\text { Beginning inventory of finished goods } & 0 \
\text { Units produced (no work in process) } & 22,000 \
\text { Units sold } & 18,000 \
\text { Units in ending inventory of finished goods } & 4,000\\text { Sales price }&\$55\text { per unit }\
\text { Variable manufacturing costs }&\$25\text { per unit }\\text { manufactured Variable selling and }\text { administrative expenses }&\$ 7 \text { per unit }\\text { sold Fixed manufacturing }\text { costs for the year } & \$ 110,000 \
\text { Fixed selling and administrative expenses for the year } & \$ 124,000
\end{array}$
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Using direct costing, the manufacturing margin is:
A)$550,000
B)$540,000
C)$480,000
D)$450,000

Question

Quizplus · Accepted Answer

The manufacturing margin under direct costing is calculated by subtracting the variable manufacturing costs from the sales revenue. Sales revenue is $18,000 \text{ units} \times \$55 = \$990,000$. Variable manufacturing costs are $22,000 \text{ units} \times \$25 = \$550,000$. Therefore, the manufacturing margin is $ \$990,000 - \$550,000 = \$440,000$. However, this calculation seems to have an error in my explanation, as none of the provided options match the calculated result. The correct approach to find the manufacturing margin under direct costing should involve considering only the units sold, not the units produced, for variable costs. Thus, the correct calculation for variable manufacturing costs should be based on units sold: $18,000 \text{ units sold} \times \$25 = \$450,000$. Then, the manufacturing margin is $ \$990,000 - \$450,000 = \$540,000$, which matches option B. My initial explanation contained a mistake in the calculation process.

Costmore Manufacturing Has Provided the Following Operating Results for Its