Under absorption costing, a company had the following unit costs when 8,000 units were produced. Compute the total production cost per unit under absorption costing if 30,000 units had been produced.

Question

Quizplus · Accepted Answer

Under absorption costing, the total production cost per unit includes both variable and fixed manufacturing overhead costs. Therefore, we need to calculate the cost per unit for 8,000 units and then allocate the fixed costs among all units produced (30,000 units in this case).

Unit cost for 8,000 units:
Direct materials = $4/unit
Direct labor = $6/unit
Variable overhead = $2/unit
Fixed overhead = $5,000/8,000 units = $0.625/unit
Total unit cost = $4 + $6 + $2 + $0.625 = $12.625

Fixed overhead per unit for 30,000 units:
$5,000/30,000 units = $0.1667/unit

Total production cost per unit for 30,000 units:
Total unit cost + Fixed overhead per unit = $12.625 + $0.1667 = $12.7917, which rounds to $12.79.

Therefore, the total production cost per unit under absorption costing for 30,000 units is $12.79, which is option C.

Under Absorption Costing, a Company Had the Following Unit Costs