Question

3 Variable ys. Absorption Costing, OU812 Incorporated manufactures one product that is sold for $10 per unit. The following information pertains to the company's first year of operations in which it produced 20,000 units and sold 15,000 units. Variable Costs Per Unit: Manufacturing: Direct Materials Direct Labor Variable Manufacturing Overhead Variable Selling & Administrative Fixed Costs Per Year: Fixed Manufacturing Overhead Fixed Selling & Administrative Expenses SI $0.75 $50,000 $10,000 Cost per Unit. What is the unit product cost under (a) variable costing? (b) absorption costing?

Answer 1

a. Unit product cost under variable costing
Direct material cost per unit            (a)	$3.00
Direct labor cost per unit                  (b)	$2.00
Variable overhead per unit                (c)	$1.00
Cost per unit                                       (a + b + c)	$6.00

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b. Unit product cost under absorption costing
Direct material cost per unit            (a)	$3.00
Direct labor cost per unit                  (b)	$2.00
Variable overhead per unit                (c)	$1.00
Fixed overhead per unit                     (d)                                                                          [Fixed manufacturing overhead ÷ Number of units produced = $50,000 / 20,000 units]	$2.50
Cost per unit                             (a + b + c + d)	$9