Santana Company has no beginning and ending inventories,and reports the following information for its only product:
$$\begin{array} { l l }
\text { Direct materials used } & \$ 250,000 \
\text { Direct labor } & \$ 120,000 \
\text { Fixed indirect manufacturing } & \$ 60,000 \
\text { Variable indirect manufacturing } & \$ 20,000 \
\text { Variable selling and administrative } & \$ 50,000 \
\text { Fixed selling and administrative } & \$ 10,000
\end{array}$$
$\begin{array} { l }
\text {Units produced and sold }&40,000 \
\end{array}$

Santana Company uses the absorption approach to prepare the income statement.What is the product cost per unit?
A) $11.00
B) $11.25
C) $12.00
D) $12.75

Question

Santana Company has no beginning and ending inventories,and reports the following information for its only product:
$$\begin{array} { l l } 
\text { Direct materials used } & \$ 250,000 \
\text { Direct labor } & \$ 120,000 \
\text { Fixed indirect manufacturing } & \$ 60,000 \
\text { Variable indirect manufacturing } & \$ 20,000 \
\text { Variable selling and administrative } & \$ 50,000 \
\text { Fixed selling and administrative } & \$ 10,000
\end{array}$$
$\begin{array} { l  }
 \text {Units produced and sold }&40,000 \
\end{array}$

Santana Company uses the absorption approach to prepare the income statement.What is the product cost per unit?
A) $11.00
B) $11.25
C) $12.00
D) $12.75

Quizplus · Accepted Answer

Under the absorption costing approach, product cost includes all manufacturing costs, both variable and fixed. Therefore, the product cost per unit is calculated as follows: Total Product Cost = Direct Materials + Direct Labor + Fixed Indirect Manufacturing + Variable Indirect Manufacturing = $250,000 + $120,000 + $60,000 + $20,000 = $450,000. Product Cost per Unit = Total Product Cost / Units Produced = $450,000 / 40,000 = $11.25.

Santana Company Has No Beginning and Ending Inventories,and Reports the Following