Question

Murphy's Rebar Company makes safety vests for rebar workers, and this is the only product they manufacture. They have provided the information below concerning their most recent month of operation:

Number of units produced		14,600
Variable costs per unit:
Direct materials	$	137
Direct labor	$	75
Variable manufacturing overhead	$	4
Variable selling and administrative expenses	$	11
Fixed costs:
Fixed manufacturing overhead	$	846,800
Fixed selling and administrative expenses	$	233,600

Murphy's had NO beginning or ending inventories.

Required:

a. Compute the unit product cost for their vests under absorption costing.

b. Compute the unit product cost for their vests under variable costing.

Answer 1

a.Fixed manufacturing overhead per unit=846,800/14,600

=$58

Hence unit product cost=Direct materials+Direct labor+Variable manufacturing overhead+Fixed manufacturing overhead

=137+75+4+58

=$274 per unit

b.unit product cost=Direct materials+Direct labor+Variable manufacturing overhead

=137+75+4

=$216 per unit