Question

Given the following data, total product cost per unit under absorption costing will be $400 greater than the total product cost per unit under variable costing.
Direct labor $1.50 per unit
Direct materials $1.50 per unit
Overhead:
Total variable overhead $900,000
Total fixed overhead $1,200,000
Expected units to be produced 3,000 units
True or false?

Answer 1

Answer:

True.

Explanation:

Giving the following information:

Direct labor $1.50 per unit

Direct materials $1.50 per unit

Overhead:

Total variable overhead $900,000

Total fixed overhead $1,200,000

Expected units to be produced 3,000 units

The difference between the absorption and variable costing methods is that the first one allocates the fixed manufacturing overhead to its production cost.

The difference will be:

Unitary fixed overhead= 1,200,000/3,000= $400 per unit