Answer the Following Questions Using the Information Below:
Cathfree Inc

question 179

Multiple Choice

Answer the following questions using the information below:
Cathfree Inc.expects to sell 35 000 athletic uniforms for $70 each in 2018.Direct materials costs are $20,direct manufacturing labour is $8,and manufacturing overhead is $6 for each uniform.The following inventory levels apply to 2017:
$$\begin{array} { l r r } & \text { Beginning inventory } & \text { Ending inventory } \\\text { Direct materials } & 12000 \text { units } & 10000 \text { units } \\\text { Work-in-process inventory } & 0 \text { units } & 0 \text { units } \\\text { Finished goods inventory } & 6000 \text { units } & 5000 \text { units }\end{array}$$
-What is the amount budgeted for direct material purchases in 2018?

• A)$640 000
• B)$760 000
• C)$600 000
• D)$580 000

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Definitions:

Contribution Margin

The amount of revenue from sales that exceeds variable costs, contributing to covering fixed costs and generating profit.

Operating Income

The profit realized from a business's operations, calculated by subtracting operating expenses from gross profit.

Absorption Costing

An approach to pricing that incorporates all production-related costs such as direct materials, direct labor, along with variable and fixed overhead expenses, into the product’s cost.

Variable Costing

An accounting method that includes only variable production costs (costs that vary with output) in product costs, while fixed costs are charged to the period they occur.