Answer the following questions using the information below:
Barry's Hobbies produces and sells a luxury animal pillow for $80.00 per unit. In the first month of operation, 3,000 units were produced and 2,250 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes:

-What is cost of goods sold per unit when using absorption costing?
A)$38
B)$40
C)$58
D)$64

Question

Answer the following questions using the information below:
Barry's Hobbies produces and sells a luxury animal pillow for $80.00 per unit. In the first month of operation, 3,000 units were produced and 2,250 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes:
 
-What is cost of goods sold per unit when using absorption costing?
A)$38 
B)$40 
C)$58 
D)$64

Quizplus · Accepted Answer

To calculate the cost of goods sold per unit using absorption costing, we need to include both variable and fixed production costs. The variable production cost per unit is $28 ($20 for direct materials and $8 for direct labor), and the fixed production cost per unit is $20 ($60,000 fixed costs divided by 3,000 units produced). Therefore, the total cost per unit is $48 ($28 + $20). 
Cost of goods sold per unit = Total production cost / Number of units sold = ($48 x 2,250) / 2,250 = $58 per unit.

Answer: D 
 
The contribution margin per unit is the difference between the selling price and variable production cost per unit. The contribution margin per unit for Barry's Hobbies is $52 ($80 - $28).

To calculate the break-even point in units, we divide the total fixed costs by the contribution margin per unit:
Break-even point in units = Total fixed costs / Contribution margin per unit = $60,000 / $52 = 1,154 units.

Since Barry's Hobbies sold 2,250 units in the first month, they exceeded their break-even point and earned a profit. Therefore, options C and D are both correct.

Answer the Following Questions Using the Information Below