Question

Union Company reported the following information about the production and sale of its only product during the first month of operations:
Selling price per unit $225.00

Sales $315,000
Direct materials used $160,000
Direct labor $100,000
Variable factory overhead $60,000
Fixed factory overhead $80,000
Variable selling and administrative expenses $20,000
Fixed selling and administrative expenses $30,000
Production volume variance 0
Ending inventory, Direct Materials 0
Ending inventory, Work-in-process 0
Ending inventory, Finished Goods 600 units

Under absorption costing, what is the product cost per unit?

A) $130.00
B) $160.00
C) $200.00
D) $225.00

Answer 1

Answer:

C) $200.00

Explanation:

Absorption Product Cost = Direct Labor + Direct Materials + Variable Overheads + Fixed Overheads

Thus, we need to Calculate the Total Cost of Goods Manufactured as follows :

Direct materials used                        $160,000

Direct labor                                        $100,000

Variable factory overhead                 $60,000

Fixed factory overhead                      $80,000

Total Cost of Goods Manufactured $400,000

Then Calculate the product cost per unit

Product cost per unit = Total Cost / Total Production

                                   =  $400,000 / ($315,000/$225.00 + 600)

                                   =   $400,000 / 2,000

                                   =   $200.00

Note : Total Production = Units Sold plus Ending Finished Goods Inventory