Question

D’Souza Company sold 7,000 units of its product for $86.00 per unit. Cost of goods sold is $55.60 per unit. Each unit had $51.20 in variable cost of goods sold and variable selling and administrative expenses are $10.60 per unit.

Compute gross profit under absorption costing.

Answer 1

To calculate the gross profit under absorption costing for D'Souza Company, multiply the units sold by the sales price to get total sales revenue, then subtract the total cost of goods sold (units sold multiplied by cost per unit). The gross profit is $212,800.

Step-by-step explanation:

The student's question is about computing the gross profit under absorption costing. In absorption costing, all manufacturing costs, both fixed and variable, are considered part of the cost of goods sold. To calculate the gross profit, we first determine total sales revenue by multiplying the number of units sold by the sales price per unit. Then, we calculate the total cost of goods sold by multiplying the cost per unit by the number of units sold. Finally, we subtract the total cost of goods sold from total sales revenue to arrive at the gross profit.

Total Sales Revenue = Units Sold × Sales Price per Unit

Total Cost of Goods Sold = Units Sold × Cost per Unit

Gross Profit = Total Sales Revenue – Total Cost of Goods Sold

For D'Souza Company, the calculations would be:

Total Sales Revenue = 7,000 units × $86.00 = $602,000

Total Cost of Goods Sold = 7,000 units × $55.60 = $389,200

Gross Profit = $602,000 – $389,200 = $212,800

is a gross profit of $212,800.

: The gross profit for D'Souza Company is calculated by subtracting the total cost of goods sold from total sales revenue. The final gross profit under absorption costing is $212,800.