Question

ABC Manufacturing has the following cost structure: Direct material (DM) per unit (DM/u) $20 Direct Labor...

ABC Manufacturing has the following cost structure:
Direct material (DM) per unit (DM/u) $20
Direct Labor (DL) per unit (DM/u $30
Variable manufacturing overhead (VMO) per unit (VMO/u) $10
Fixed manufacturing overhead per year $100,000
Fixed selling and administrative expenses $200,000
Assume
units produced 10,000
units sold 8,000
Using variable costing, the cost of goods sold is?

$100,000

$120,000

$140,000

$480,000
Business   Accounting   
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Answer #1

Correct answer-----------$480,000

Working

Direct material (DM) per unit $ 20.00
Direct Labor (DL) per unit $ 30.00
Variable manufacturing overhead (VMO) per unit $ 10.00
Total cost per unit (20+30+10) $ 60.00
Total units sold 8000
Cost of goods sold (8000 x 60) $ 480,000.00

Fixed manufacturing overhead are not added to cost of goods sold it is shown as a separate item on income statement in total. In other words fixed manufacturing overhead are not an inventory cost invariable costing.

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