Gizmo Manufacturers, a widgets manufacturing company, divides its production operations into three processes-Department 1, Department 2, and Department 3. The company uses a process costing system. Gizmo incurred the following costs during the year 2014, to produce 5,000 units. $$\begin{array} { | r | r | }
\hline \text { Department 1 } & \$ 17,500 \
\hline \text { Department 2 } & 6,000 \
\hline \text { Department 3 } & 4,000 \
\hline
\end{array}$$ If Gizmo could sell only 3,500 units in 2014, what will be the cost per unit of widget produced?

Question

Gizmo Manufacturers, a widgets manufacturing company, divides its production operations into three processes-Department 1, Department 2, and Department 3. The company uses a process costing system. Gizmo incurred the following costs during the year 2014, to produce 5,000 units. $$\begin{array} { | r | r | } 
\hline \text { Department 1 } & \$ 17,500 \
\hline \text { Department 2 } & 6,000 \
\hline \text { Department 3 } & 4,000 \
\hline
\end{array}$$ If Gizmo could sell only 3,500 units in 2014, what will be the cost per unit of widget produced?

Quizplus · Accepted Answer

To calculate the cost per unit of widget produced, we need to find the total cost and then divide it by the number of units produced. 
Total cost = Cost of Department 1 + Cost of Department 2 + Cost of Department 3 
= $17,500 + $6,000 + $4,000 
= $27,500

Cost per unit = Total cost/Number of units produced 
= $27,500/5,000 
= $5.50

Since the company could sell only 3,500 units, the cost per unit of widget produced is calculated as follows: 
Cost per unit = Total cost/Number of units sold 
= $27,500/3,500 
= $7.85

Therefore, the correct answer is D) $5.50.

Gizmo Manufacturers, a Widgets Manufacturing Company, Divides Its Production Operations