Assume the company uses variable costing. Determine its product cost per unit. Cool Sky reports...

Question:

Assume the company uses variable costing. Determine its product cost per unit.

Cool Sky reports the following costing data on its product for its first year of operations. During this first year, the company produced 42,000 units and sold 34,000 units at a price of $120 per unit

Manufacturing costs
Direct materials per unit $48
Direct labor per unit $18
Variable overhead per unit $6
Fixed overhead for the year $420,000
Selling and administrative costs
Variable selling and administrative cost per unit $11
Fixed selling and administrative cost per year $105,000

Variable Costing:

Two approaches are used to determine the product cost per unit: variable costing and absorption costing. Variable costing is useful for internal management in decision making whereas absorption costing is required for the presentation of financial statements.

Answer and Explanation:


Product cost per unit under variable costing:


Description Per unit ($)
Direct material $48.00
Direct labor $18.00
Prime Costs (Material + labor) $66.00
Add: Variable manufacturing overhead $6.00
Product cost per unit $72.00

Under variable costing, fixed costs are not considered part of product cost even though related to manufacturing activities.


Learn more about this topic:

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Variable Costing: Method, Formula & Advantages

from Financial Accounting: Help and Review

Chapter 13 / Lesson 5
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