Assume a company had the following production costs.
Under absorption costing, the total production cost per unit when 4,000 units are produced would be $22.50.
$$\begin{array} { l l }
\text { Direct labor } & \$ 20,000 \
\text { Direct material } & \$ 30,000 \
\text { Variable overhead } & \$ 40,000 \
\text { Fixed overhead } & \$ 50,000
\end{array}$$

Question

Assume a company had the following production costs.
Under absorption costing, the total production cost per unit when 4,000 units are produced would be $22.50.
 $$\begin{array} { l l } 
\text { Direct labor } & \$ 20,000 \
\text { Direct material } & \$ 30,000 \
\text { Variable overhead } & \$ 40,000 \
\text { Fixed overhead } & \$ 50,000
\end{array}$$

Quizplus · Accepted Answer

Under absorption costing, the total production cost per unit includes direct labor, direct material, variable overhead, and a portion of fixed overhead. The total cost is $140,000 ($20,000 + $30,000 + $40,000 + $50,000), so the cost per unit for 4,000 units is $35 ($140,000 / 4,000 units), not $22.50.

Assume a Company Had the Following Production Costs