A business produces and sells watches. In 2015, 4000 watches were produced and 3600watches were sold. Other information for the year included the following:$ per unitdirect materials 60direct labour 80variable selling expenses 15fixed manufacturing overheads 45fixed administrative costs 50What is the cost of goods sold for 2015 if the business uses absorption costing?A $558 000 B $666 000 C $720 000 D $740 000
Question
A business produces and sells watches. In 2015, 4000 watches were produced and 3600watches were sold. Other information for the year included the following:558 000 B 720 000 D $740 000
Solution
To calculate the cost of goods sold using absorption costing, we need to consider the direct materials, direct labor, variable selling expenses, fixed manufacturing overheads, and fixed administrative costs.
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Calculate the total variable costs: Variable costs per unit = direct materials + direct labor + variable selling expenses Variable costs per unit = 80 + 155
Total variable costs = variable costs per unit * number of units sold Total variable costs = 558,000
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Calculate the total fixed costs: Total fixed costs = fixed manufacturing overheads + fixed administrative costs Total fixed costs = 50 = $95
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Calculate the cost of goods sold: Cost of goods sold = total variable costs + total fixed costs Cost of goods sold = 95 = $558,095
Therefore, the cost of goods sold for 2015 using absorption costing is $558,095.
The correct answer is A) $558,000.
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