Question

Under absorption costing, a company had the following unit costs when 10,000 units were produced:DL: $2 per unitDM: $3 per unitVOH: $4 per unitTot Variable: $9 per unitFixed OH: $5 per unitTot PC: $14 per unitThe total product cost per unit under absorption costing if 25,000 units had been produced would be $11A. TrueB. False

Answer 1

Answer:

A.- TRUE

Explanation:

Under absorption costing the fixed cost are distribute over the units produced:

With the current production and unit fixed overhead we can determinate the total fixed cost:

$Unit Produced * Units Fixed OH = Total Fixed Cost\\\\10,000 * 5 = 50,000$

Now If the Amount produced increase to 25,000 the unit fixed overhead will change:

$\frac{TotalFixedCost}{Unit Produced}= Unit Fixed MO\\\\\frac{50,000}{25,000}= 2$

And with that a new total unit cost:

$Unit cost = Variable Cost + Fixed Cost\\9 + 2 = 11$

The statment is TRUE