Question

Hyper Color Company manufactures widgets. The following data is related to sales and production of the widgets for last year.

Selling price per unit	$160
Variable manufacturing costs per unit	$60
Variable selling and administrative expenses per unit	$7
Fixed manufacturing overhead​ (in total)	$31,000
Fixed selling and administrative expenses​ (in total)	$5,000
Units produced during the year	1,500
Units sold during year	1,100

Using absorption​ costing, what is gross profit for last​ month? (Round any intermediary calculations to the nearest whole​ dollar.)

A. $86,900

B. $1,560,900

C. $176,000

D.$ 265,100

Answer 1

Under absorption costing, the unit cost includes the variable and the fixed manufacturing cost per unit. Also, the cost of goods sold is based on the units sold.

Unit product cost = Variable manufacturing cost per unit + Fixed manufacturinf cost per unit

=> Unit product cost = $60 p.u. + ($31,000 / 1,500 units) = $81 p.u.

Gross profit for the month = Sales revenue - Cost of goods sold

=> Gross profit for the year = ($160 x 1,100 units) - ($81 x 1,100 units) = $86,900

Hence, option A is the correct answer.