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11 February, 07:54

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

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Answers (1)
  1. 11 February, 07:58
    0
    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
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