Question

Gabuat Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price	$	106
Units in beginning inventory		0
Units produced		2,600
Units sold		2,200
Units in ending inventory		400

Variable costs per unit:
Direct materials	$	46
Direct labor	$	28
Variable manufacturing overhead	$	2
Variable selling and administrative expense	$	7
Fixed costs:
Fixed manufacturing overhead	$	33,800
Fixed selling and administrative expense	$	8,800

1. The total gross margin for the month under the absorption costing approach is

2. What is the total period cost for the month under the absorption costing?

The following information has been gathered for the Harrell Manufacturing Company for its fiscal year ending December 31:

Actual manufacturing overhead costs	$	212,500
Actual direct labor hours		54,900
Actual direct labor costs	$	445,000
Estimated manufacturing overhead costs	$	210,000
Estimated direct labor	$	434,000
Estimated direct labor hours		56,000

3. What is the predetermined manufacturing overhead rate, assuming direct labor cost is used as the activity base?

Answer 1

1	Direct Materials	$46
	Direct Labor	$28
	Variable manufacturing Overhead	$2
	Fixed manufacturing Overhead($33,800/2,600 units)	$13
	Absorption costing unit product cost	$89
	Sales(2,200 units*$106)	$2,33,200
	Cost of goods sold(2,200 units*$89)	$1,95,800
	Gross Margin	$37,400
2	Variable Selling and administrative expenses($7*2,200 units)	$15,400
	Fixed Selling and administrative expenses	$8,800
	Period Cost	$24,200
3	Predetermined Manufacturing Overhead rate	$7.75 per hour
	(Estimated direct labor cost/Estimated direct labor hours)
	($434,000 / 56,000 hours)