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.
$$\begin{array} { | l | c | }
\hline \text { Direct labor } & \$ 1.50 \text { per unit } \
\hline \text { Direct materials } & \$ 1.50 \text { per unit } \
\hline \text { Overhead } & \
\hline \text { Total variable overhead } & \$ 900,000 \
\hline \text { Total fixed overhead } & \$ 1,200,000 \
\hline & \
\hline \text { Expected units to be produced } & 3,000 \text { units } \
\hline
\end{array}$$

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.
 $$\begin{array} { | l | c | } 
\hline \text { Direct labor } & \$ 1.50 \text { per unit } \
\hline \text { Direct materials } & \$ 1.50 \text { per unit } \
\hline \text { Overhead } & \
\hline \text { Total variable overhead } & \$ 900,000 \
\hline \text { Total fixed overhead } & \$ 1,200,000 \
\hline & \
\hline \text { Expected units to be produced } & 3,000 \text { units } \
\hline
\end{array}$$

Quizplus · Accepted Answer

Under absorption costing, fixed overhead is applied to units of production, while under variable costing, only variable overhead is applied to units of production. In this case, the total fixed overhead of $1,200,000 is applied to 3,000 units of production, resulting in a fixed overhead cost per unit of $400. This $400 per unit is added to the variable cost per unit to arrive at the total product cost per unit under absorption costing. Under variable costing, the fixed overhead cost per unit is not included in the total product cost per unit, resulting in a total product cost per unit that is $400 less than the total product cost per unit under absorption costing.

Given the Following Data, Total Product Cost Per Unit Under