Washington Company provided the following information regarding its only product--ice skates. $\begin{array}{lr}
\text { Direct materials used } & \$ 200,000 \
\text { Direct labor } & 80,000 \
\text { Fixed overhead } & 100,000 \
\text { Fixed selling and administrative costs } & 300,000 \
\text { Variable overhead } & 20,000 \
\text { Variable selling and administrative } & 60,000 \
\text { Selling unit price } & 100 \
& \
\text { Units produced and sold } & 10,000
\end{array}$ The difference in manufacturing cost per unit between the absorption approach and contribution approach is _____.
A)$10 higher if absorption cost is used
B)$10 higher if contribution cost is used
C)$40 higher if absorption is used
D)$40 higher if contribution is used

Question

Quizplus · Accepted Answer

Under the absorption approach, both variable and fixed manufacturing costs are included in the cost of the product. Under the contribution approach, only variable manufacturing costs are included in the cost of the product, and fixed manufacturing costs are treated as period costs. The difference in manufacturing cost per unit between the two approaches is the fixed overhead per unit. Fixed overhead = $100,000, and units produced and sold = 10,000. Fixed overhead per unit = $100,000 / 10,000 = $10. Therefore, the cost per unit is $10 higher if the absorption approach is used.

Washington Company Provided the Following Information Regarding Its Only Product--Ice