Q6SE - Horngren'S Financial And Managerial Accounting

Question

Computing absorption cost per unit and variable cost per unit 

Adamson, Inc. has the following cost data for Product X:                                                                                                                                

Direct materials                                            $ 41 per unit                                                               Direct labor                                                    57 per unit                                                                 Variable manufacturing overhead                 7 per unit                                                                Fixed manufacturing overhead                 20,000 per year       

Calculate the unit product cost using absorption costing and variable costing when production is 2,000 units, 2,500 units, and 5,000 units.                        

Step-by-Step Solution

Answer

Answer

 

• Total unit product cost under absorption costing is $115, $113, $109 for production 2,000, 2,500, 5,000 respectively.
• Total unit product cost under variable costing is $105, $105, $105 for production 2,000, 2,500, 5,000 respectively.

 

Step 1: Calculation of unit product cost using absorption costing

Particulars	2,000  Units	2,500  Units	5,000   Units
Direct material	$41	$41	$41
Direct labor	$57	$57	$57
Variable manufacturing overhead	$7	$7	$7
Fixed manufacturing overhead	$20,000/2,000 =$10	$20,000/2,500 =$8	$20,000/5,000 =$4
Total unit product cost	$115	$113	$109

Step 2: Calculation of unit product cost using variable costing

Particulars	2,000  Units	2,500  Units	5,000   Units
Direct material	$41	$41	$41
Direct labor	$57	$57	$57
Variable manufacturing overhead	$7	$7	$7
Total unit product cost	$105	$105	$105