Given the following data, total product cost per unit under absorption costing will be $400 greater than total product cost per unit under variable costing.
$$\begin{array} { | l | c | }
\hline \text { Direct labor } & \mathbf { \$ 1 . 5 0 p e r ~ u ni t ~ } \
\hline \text { Direct rmaterials } & \$ 1.50 \mathrm { per } \text { unit } \
\hline \text { Overhead } & \
\hline \text { Total variable overhead } & \$ 900,000 \
\hline \text { Total fixed overhead } & \$ 1,200,000 \
\hline & \
\hline \text { Expected urits to be produced } & \mathbf { 3 , 0 0 0 } \text { units } \
\hline
\end{array}$$

Question

Given the following data, total product cost per unit under absorption costing will be $400 greater than total product cost per unit under variable costing.
 $$\begin{array} { | l | c | } 
\hline \text { Direct labor } & \mathbf { \$ 1 . 5 0 p e r ~ u ni t ~ } \
\hline \text { Direct rmaterials } & \$ 1.50 \mathrm { per } \text { unit } \
\hline \text { Overhead } & \
\hline \text { Total variable overhead } & \$ 900,000 \
\hline \text { Total fixed overhead } & \$ 1,200,000 \
\hline & \
\hline \text { Expected urits to be produced } & \mathbf { 3 , 0 0 0 } \text { units } \
\hline
\end{array}$$

Quizplus · Accepted Answer

Under absorption costing, both variable and fixed overhead costs are included in the product cost per unit. Therefore, the total product cost per unit will be higher than under variable costing, which only includes variable overhead costs in the product cost per unit. In this case, the total fixed overhead cost is $1,200,000, which when divided by the expected units to be produced (3,000 units) results in a fixed overhead cost per unit of $400. Therefore, the total product cost per unit under absorption costing will be $400 higher than under variable costing (which only includes the variable overhead cost of $900,000 divided by 3,000 units, resulting in a variable overhead cost per unit of $300). Thus, the statement in the question is true.

Given the Following Data, Total Product Cost Per Unit Under