A company reports the following information for its first year of operations.
$$\begin{array} { l l }
\text { Units produced this year } & ? \text { units } \
\text { Units sold this year } & 1,500 \text { units } \
\text { Direct materials } & \$ 9 \text { per unit } \
\text { Direct labor } & \$ 5 \text { per unit } \
\text { Variable overhead } & \$ 7 \text { per unit } \
\text { Fixed overhead } & \$ 24,000 \text { in total }
\end{array}$$
If the company's cost per unit of finished goods using absorption costing is $27, how many units were produced?

Question

A company reports the following information for its first year of operations. 
$$\begin{array} { l l } 
\text { Units produced this year } & ? \text { units } \
\text { Units sold this year } & 1,500 \text { units } \
\text { Direct materials } & \$ 9 \text { per unit } \
\text { Direct labor } & \$ 5 \text { per unit } \
\text { Variable overhead } & \$ 7 \text { per unit } \
\text { Fixed overhead } & \$ 24,000 \text { in total }
\end{array}$$
If the company's cost per unit of finished goods using absorption costing is $27, how many units were produced?

Quizplus · Accepted Answer

The correct answer is A.The total cost of production is $27 per unit, which includes $9 for direct materials, $5 for direct labor, $7 for variable overhead, and $6 for fixed overhead ($24,000 / 4,000 units). Since the company sold 1,500 units this year, it must have produced 4,000 units (1,500 units sold + 2,500 units in ending inventory).

A Company Reports the Following Information for Its First Year