SKM Innovations, Inc., anticipates producing 40,000 units and incurring the following manufacturing costs for the coming year: raw material, $35 per unit; direct labor, $50 per unit; manufacturing overhead, $1,200,000 + $40 per unit.Using absorption costing, the unit cost for the coming year will be:

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Absorption costing includes all manufacturing costs: raw materials ($35), direct labor ($50), and both fixed and variable manufacturing overhead. The fixed overhead is $1,200,000, and the variable overhead is $40 per unit. The total cost per unit is $35 + $50 + $40 + ($1,200,000 / 40,000 units) = $155.