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15,000 units are produced and 15,000 sold. Variable manufacturing cost is $25 per unit and fixed manufacturing costs are $150,000. What is cost of goods sold under absorption costing?
A$375,000
B$487,500
C$525,000
D$575,000
Answer & Solution
Correct answer: C. $525,000
1. Absorption costing loads both variable and fixed manufacturing cost into each unit.
2. Fixed cost per unit is $150,000 divided by the 15,000 units produced, which is $10.
3. Full manufacturing cost per unit is $25 plus $10, which is $35.
4. 15,000 units sold times $35 gives cost of goods sold of $525,000.
5. $375,000 is the variable cost of goods sold used under variable costing, which leaves the $150,000 out.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 6.2 Units Manufactured Equals Units Sold_
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