A company has the following information for its first month of operations: $\begin{array}{ll}
\text { Raw material s used } & \$ 25,000 \
\text { Sales ( } \$ 65 \text { per unit) } & \$ 78,000 \
\text { Direct labor } & \$ 42,000 \
\text { Variable factory overhead } & \$ 17,000 \
\text { Fixed factory overhead } & \text { unknown }\\text { Variable s elling and administrative } & \$ 3,000 \
\text { Fixed selling and adminis trative } & \$ 5,000 \
\text { Gross profit } & \$ 30,000 \
\text { Contribution margin } & \text { unknown }
\end{array}$ The company sold half of the units it produced. of factory overhead is included in the ending inventory under absorption costing.

Question

Quizplus · Accepted Answer

Fixed factory overhead is not included in the ending inventory under absorption costing. Therefore, the fixed factory overhead is $12,000 - $8,400 = $3,600. The variable factory overhead is $17,000. Therefore, the total factory overhead is $3,600 + $17,000 = $20,600. The cost of goods sold is $25,000 + $42,000 + $20,600 = $87,600. The contribution margin is $78,000 - $87,600 = $6,000.

A Company Has the Following Information for Its First Month