Magenta Inc. reports the following information for the current year which is its first year of operations.
$$\begin{array} { l l }
\text { Units produced this year } & 750,000 \text { units } \
\text { Units sold this year } & 740,000 \text { units } \
\text { Direct materials } & \$ 18.30 \text { per unit } \
\text { Direct labor } & \$ 14.20 \text { per unit } \
\text { Variable overhead } & ? \text { in total } \
\text { Fixed overhead } & \$ 4,500,000 \text { in total }
\end{array}$$
If the company's cost per unit of finished goods using absorption costing is $39.75, what is total variable overhead?

Question

Magenta Inc. reports the following information for the current year which is its first year of operations. 
$$\begin{array} { l l } 
\text { Units produced this year } & 750,000 \text { units } \
\text { Units sold this year } & 740,000 \text { units } \
\text { Direct materials } & \$ 18.30 \text { per unit } \
\text { Direct labor } & \$ 14.20 \text { per unit } \
\text { Variable overhead } & ? \text { in total } \
\text { Fixed overhead } & \$ 4,500,000 \text { in total }
\end{array}$$
If the company's cost per unit of finished goods using absorption costing is $39.75, what is total variable overhead?

Quizplus · Accepted Answer

Under absorption costing, the cost per unit includes direct materials, direct labor, variable overhead, and fixed overhead. Given the cost per unit is $39.75, we can set up the equation: $18.30 (Direct Materials) + $14.20 (Direct Labor) + Variable Overhead per unit + ($4,500,000 / 750,000 units) (Fixed Overhead per unit) = $39.75. Solving for Variable Overhead per unit gives $3.75. Therefore, total variable overhead is $3.75 * 750,000 units = $2,812,500. However, this calculation seems incorrect, and upon re-evaluation, the correct total variable overhead should be $937,500.

Magenta Inc If the Company's Cost Per Unit of Finished Goods Using