Question

9. . Andy Basil Industries Inc. reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit                                                   $225.00

Sales                                                                             $360,000

Direct materials used                                                $176,000

Direct labor                                                                 $100,000

Variable factory overhead                                          $44,000

Fixed factory overhead                                               $80,000

Variable selling and administrative expenses         $20,000

Fixed selling and administrative expenses              $10,000

Production volume variance                                                 0

Ending inventory, Direct Materials                                     0

Ending inventory, Work-in-process                                    0

Ending inventory, Finished Goods                        400 units

Under absorption costing, what is the Cost of Goods Sold?

A) $256,000

B) $272,000

C) $320,000

D) $360,000

Answer 1

Sales = $360,000

Selling price per unit = $225

Number of units sold = Sales / Selling price per unit

= 360,000/225

= 1,600 units

Ending inventory = 400 units

Number of units produced = Number of units sold + Ending inventory

= 1,600+400

= 2,000 units

Cost of ending inventory = Cost of production x Ending inventory/ Number of units produced

= 400,000 x 400/2,000

= $80,000

Calculation of Cost of Goods sold under Absorption Costing
Direct materials	$176,000
Direct labor	100,000
Variable factory overhead	44,000
Fixed factory overhead	80,000
Cost of production	$400,000
Cost of ending inventory	-80,000
Cost of goods sold	$320,000

The cost of goods sold = $320,000

Correct option is C.

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