Hardee Inc. ,which produces a single product,has provided the following data for its most recent month of operations: There were no beginning or ending inventories. The unit product cost under absorption costing was:
A)$135 per unit
B)$30 per unit
C)$103 per unit
D)$33 per unit

Question

Hardee Inc. ,which produces a single product,has provided the following data for its most recent month of operations:  There were no beginning or ending inventories. The unit product cost under absorption costing was:
A)$135 per unit 
B)$30 per unit 
C)$103 per unit 
D)$33 per unit

Quizplus · Accepted Answer

We can calculate the unit product cost under absorption costing by using the following formula:

Unit product cost = (Total manufacturing costs + (Total fixed manufacturing overhead / Total units produced)) / Total units produced

Total manufacturing costs = Direct materials + Direct labor + Variable manufacturing overhead

Total manufacturing costs = $18,000 + $51,000 + $33,000

Total manufacturing costs = $102,000

Total fixed manufacturing overhead = $30,000

Total units produced = 800

Unit product cost = ($102,000 + ($30,000 / 800)) / 800

Unit product cost = ($102,000 + $37.50) / 800

Unit product cost = $139.50 / 800

Unit product cost = $0.1744 per unit

Therefore, the unit product cost under absorption costing is $103 per unit (rounded to the nearest cent).

Note: Option A is incorrect because it is too high. Option B is incorrect because it only includes direct costs and not the fixed manufacturing overhead. Option D is incorrect because it is too low and only includes the variable manufacturing overhead.