ECONOMICS

Detailed explanation-1: -Absorption costing is used to determine the cost of goods sold and ending inventory balances on the income statement and balance sheet, respectively. It is also used to calculate the profit margin on each unit of product and to determine the selling price of the product.

Detailed explanation-2: -Preparing an Absorption Costing Income Statement The resulting figure is goods available for sale. Subtract the ending inventory dollar value, and the result is cost of goods sold. Subtract gross sales from cost of goods sold to calculate the gross margin.

Detailed explanation-3: -Which of the following is true of a company that uses absorption costing? Unit product costs can change as a result of changes in the number of units manufactured.

Detailed explanation-4: -Which of the following statements is true regarding absorption costing? It assigns all manufacturing costs to products. Which of the following statements is true regarding variable costing? Only manufacturing costs that change in total with changes in production level are included in product costs.

Detailed explanation-5: -With absorption costing, gross profit is derived by subtracting cost of goods sold from sales. Cost of goods sold includes direct materials, direct labor, and variable and allocated fixed manufacturing overhead.