A company has the following information for its first month of operations: $\begin{array}{ll}
\text { Raw materials used } & \$ 37,500 \
\text { Sales }(\$ 97.50 \text { per unit) } & \$ 117,000 \
\text { Direct labor } & \$ 63,000 \
\text { Variable factory overhead } & \$ 25,500 \
\text { Fixed factory overhead } & \text { unknown }\\text { Variable selling and administrative } & \$ 4,500 \
\text { Fixed selling and adminis trative } & \$ 7,500 \
\text { Gross profit } & \$ 45,000 \
\text { Contribution margin } & \text { unknown }
\end{array}$ The company sold half of the units it produced. _ is the cost of goods sold under absorption costing.

Question

Quizplus · Accepted Answer

Under absorption costing, the cost of goods sold includes all manufacturing costs: raw materials, direct labor, variable factory overhead, and a portion of fixed factory overhead. Since the company sold half of the units produced, the cost of goods sold is half of the total manufacturing costs. The total manufacturing costs are $37,500 (raw materials) + $63,000 (direct labor) + $25,500 (variable factory overhead) + fixed factory overhead. Since the gross profit is $45,000 and sales are $117,000, the cost of goods sold is $117,000 - $45,000 = $72,000.

A Company Has the Following Information for Its First Month