Seattle Enterprises produces packaged fresh meals that sell for $10 each. During the current month, Seattle produced 2,800 meals, but only sold 2,700 meals. The variable cost per meal was $6 and the sales commissions per meal were $1. Total fixed manufacturing costs were $1,400 and total fixed marketing and administrative costs were $1,200.
-Gross profit under absorption costing would be:

Question

Seattle Enterprises produces packaged fresh meals that sell for $10 each. During the current month, Seattle produced 2,800 meals, but only sold 2,700 meals. The variable cost per meal was $6 and the sales commissions per meal were $1. Total fixed manufacturing costs were $1,400 and total fixed marketing and administrative costs were $1,200. 
-Gross profit under absorption costing would be:

Quizplus · Accepted Answer

Under absorption costing, gross profit is calculated by subtracting the cost of goods sold (COGS) from sales revenue. Sales revenue is $10 x 2,700 meals = $27,000. COGS includes variable costs ($6 x 2,700 meals = $16,200) and a portion of fixed manufacturing costs ($1,400/2,800 meals = $0.50 per meal x 2,700 meals = $1,350). Total COGS = $16,200 + $1,350 = $17,550. Gross profit = $27,000 - $17,550 = $9,450.

Seattle Enterprises Produces Packaged Fresh Meals That Sell for $10