Question

The following cost behavior patterns describe anticipated manufacturing costs for 2019: raw material, $7.50/unit; direct labor, $10.50/unit; and manufacturing overhead, $297,500 $8.50/unit. Required: If anticipated production for 2019 is 35,000 units, calculate the unit cost using variable costing and absorption costing. (Round your answers to 2 decimal places.)

Answer 1

Answer:

                                         Unit cost

                                                $

Variable costing                    18

Absorption costing               26.5

Explanation:

Variable costing values every unit produced at the marginal cost. Marginal cost is the sum of direct material, direct labor and variable overhead.

Marginal cost = 7.50 + 10.50 =$18

Absorption costing values every unit at full cost. Full cost is the sum of marginal and fixed overhead cost per unit,

Fixed overhead cost per unit =  $297,500/35,000=8.5

Full cost = 7.50 + 10.50 + 8.50= $26.5

                                     Unit cost

                                                $

Variable costing                    18

Absorption costing               26.5

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