Cleveland Company reported the following information about the production and sales of its only product during its first month of operations: $$\begin{array} { l l }
\text { Sales ( } \$ 225 \text { per unit) } & \$ 360,000 \
\text { Direct materials used } & \$ 176,000 \
\text { Direct labor } & \$ 100,000 \
\text { Variable factory overhead } & \$ 44,000 \
\text { Fixed factory overhead } & \$ 80,000 \
\text { Variable selling and administrative } & \$ 20,000 \
\text { expenses } & \
\text { Fixed s elling and administrative expenses } & \$ 10,000 \
\text { Endinginventories: Direct materials } & - 0 - \
\text { WIP } & - 0 -\\text { Finished goods }&400 \text { units }
\end{array}$$ The cost of goods sold under absorption costing is:

Question

Cleveland Company reported the following information about the production and sales of its only product during its first month of operations: $$\begin{array} { l l } 
\text { Sales ( } \$ 225 \text { per unit) } & \$ 360,000 \
\text { Direct materials used } & \$ 176,000 \
\text { Direct labor } & \$ 100,000 \
\text { Variable factory overhead } & \$ 44,000 \
\text { Fixed factory overhead } & \$ 80,000 \
\text { Variable selling and administrative } & \$ 20,000 \
\text { expenses } & \
\text { Fixed s elling and administrative expenses } & \$ 10,000 \
\text { Endinginventories: Direct materials } & - 0 - \
\text { WIP } & - 0 -\\text { Finished goods }&400 \text { units }
\end{array}$$ The cost of goods sold under absorption costing is:

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing costs are included in the cost of goods sold. The cost of goods sold is calculated as follows:Beginning inventory + Cost of goods manufactured - Ending inventory = Cost of goods soldCost of goods manufactured = Direct materials used + Direct labor + Variable factory overhead + Fixed factory overheadCost of goods manufactured = $176,000 + $100,000 + $44,000 + $80,000 = $400,000Cost of goods sold = $0 + $400,000 - ($400 x $225) = $320,000

Cleveland Company Reported the Following Information About the Production and Sales