Q20RQ - Horngren'S Financial And Managerial Accounting

Question

How does a merchandising company calculate unit cost per item?

Step-by-Step Solution

Answer

The merchandising company calculates the unit cost per item by calculating a total number of items sold from the total cost of goods sold.

Step 1: Definition of merchandising company

A merchandising company is defined as a company that sells the goods which are purchased from the supplier.

Step 2: Computation of cost per item

The cost per item for merchandising company is computed by using the formula in which the total cost of goods sold is divided by the total number of items sold.

$\mathbf{Unit}\mathbf{ }\mathbf{Product}\mathbf{ }\mathbf{Cost}\mathbf{=}\frac{\mathrm{Total} \mathrm{Cost} \mathrm{of} \mathrm{Goods} \mathrm{Manufactured}}{\mathrm{Total} \mathrm{Units} \mathrm{Produced}}$