Last year, Adara Company produced 11,000 units and sold 9000 units. The company had no beginning inventory. They incurred the following costs: $$\begin{array} { | l | r | }
\hline \text { Direct materials per unit } & \$ 18 \
\hline \text { Direct labor per unit } & \$ 15 \
\hline \text { Variable overhead per unit } & \$ 7 \
\hline \text { Total fixed manufacturing } & \$ 55,000 \
\text { pverhead } & \
\hline \text { Total selling and administrative } &\$ 80,000\
\hline
\end{array}$$ Adara's product cost per unit under variable costing is
A) $45
B) $40
C) $46
D) $52

Question

Last year, Adara Company produced 11,000 units and sold 9000 units. The company had no beginning inventory. They incurred the following costs: $$\begin{array} { | l | r | } 
\hline \text { Direct materials per unit } & \$ 18 \
\hline \text { Direct labor per unit } & \$ 15 \
\hline \text { Variable overhead per unit } & \$ 7 \
\hline \text { Total fixed manufacturing } & \$ 55,000 \
\text { pverhead } &  \
\hline \text { Total selling and administrative } &\$ 80,000\
\hline
\end{array}$$ Adara's product cost per unit under variable costing is
A) $45
B) $40
C) $46
D) $52

Quizplus · Accepted Answer

Under variable costing, only the variable manufacturing costs are included in the cost of goods sold.

Total variable manufacturing costs = Direct materials + Direct labor + Variable manufacturing overhead 
Total variable manufacturing costs = $220,000

Variable cost per unit = Total variable manufacturing costs ÷ Number of units produced 
Variable cost per unit = $220,000 ÷ 11,000 units 
Variable cost per unit = $20

Therefore, Adara's product cost per unit under variable costing is:

Variable cost per unit + Fixed manufacturing overhead per unit 
$20 + $20 
= $40 per unit

Last Year, Adara Company Produced 11,000 Units and Sold 9000