Question

Ch 5: Variable Costing (16 of 20) Q5.16 Eastern Distributors has a beginning balance of 800 units in inventory comprised of the following unit costs $32 $12 Direct materials: Direct labor: Variable manufacturing overhead: Fixed manufacturing overhead $9 $7 Production and sales information for the current year is as follows: 12,200 units produced (12,000 units sold) Direct materials purchased and used: $427,000 Direct labor incurred: $152,500 Variable manufacturing overhead: $122,000 Fixed manufacturing overhead: $85,400 Variable selling and administrative costs: $14 per unit sold Fixed selling and administrative costs: 525,000 Eastern sells its older inventory items first. Under full costing, what is gross margin if Eastern's selling price is $140 per unit? A $906,000 B В $738,000 C $917,600 D $1,080,000

Answer 1

Computation of gross margin of Eastern Distributors under full costing

Particulars	Amount($)
Sales (12000×$140)	$1680000
Less:
Cost of goods sold (note 1)	($770400)
Gross margin	$909600

Working note:

1. Cost of goods sold under full costing, FIFO method

Under FIFO method, out of total 12000 units sold,
- 800 units are from beginning inventory
- Remaining 11200units are from current year production.

Cost of 800 units from beginning inventory under full costing

Particulars	Amount($)
Direct Material (800×$32)	$25600
Direct labor (800*$12)	$9600
Variable manufacturing Overhead (800×$9)	$7200
Fixed manufacturing overhead (800×$7)	$5600
Total	$48000

Cost of 11200 units from current year production

Particulars	Amount($)
Direct Material	$427000
Direct Labor	$152500
Variable manufacturing. Overhead	$122000
Fixed manufacturing overhead	$85400
Total (a)	$786900
Units produced (b)	12200 units
Cost of production per unit (a/b)	$64.5
Total cost of goods sold of 11200 units (11200×$64.5)	$722400

Total cost of goods sold under full costing
= cost of 800 units from beginning inventory + Cost of 11200 units from current year production
= $48000 + $722400
= $770400

----------*-----------

(This is the way how we can arrive at gross margin. But there is no appropriate option provided. I put my best effort to cross check many time but that is the final approximate answer I am getting. Kindly look into it)

DO VOTE, ALL THE BEST