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
|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||$105,000|
Two approaches are used to determine the product cost per unit: variable costing and absorption costing. Variable costing is useful for internal management in decision making whereas absorption costing is required for the presentation of financial statements.
Answer and Explanation:
Product cost per unit under variable costing:
|Description||Per unit ($)|
|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.
Become a member and unlock all Study Answers
Try it risk-free for 30 daysTry it risk-free
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
from Financial Accounting: Help and ReviewChapter 13 / Lesson 5