Seattle Enterprises produces packaged fresh meals which it sells for $10 each. During the current month, Seattle produced 2,800 meals, but only sold 2,700 meals. The variable cost per meal was $6 and the sales commissions per meal were $1. Total fixed manufacturing costs were $1,400 and total fixed marketing and administrative costs were $1,200. What is the product cost per meal under absorption and under variable costing?

Question

Quizplus · Accepted Answer

Under absorption costing, product cost includes all manufacturing costs (both variable and fixed). The variable manufacturing cost is $6 per meal. The fixed manufacturing cost is $1,400 total, which, when divided by the 2,800 meals produced, adds $0.50 per meal. Therefore, the absorption costing per meal is $6.50 ($6 + $0.50). Under variable costing, only variable costs are included in the product cost, so the cost remains $6 per meal, as fixed manufacturing costs are not included.

Seattle Enterprises Produces Packaged Fresh Meals Which It Sells for $10