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22 February, 09:14

Vega Enterprises has computed the following unit costs for the year just ended: Direct material used $12 Direct labor 18 Variable manufacturing overhead 25 Fixed manufacturing overhead 29 Variable selling and administrative cost 10 Fixed selling and administrative cost 17 Under absorption costing, each unit of the company's inventory would be carried at:

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  1. 22 February, 09:34
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    Absorption cost = $84 unit

    Explanation:

    Giving the following information:

    Direct material used $12

    Direct labor 18

    Variable manufacturing overhead 25

    Fixed manufacturing overhead 29

    Variable selling and administrative cost 10

    Fixed selling and administrative cost 17

    Absorption costing captures all product costs (direct labor, direct material, manufacturing overhead) to each unit of a product produced during the period. It includes variable and fixed cost.

    Absorption cost = Direct material used + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead

    Absorption cost = 12 + 18 + 25 + 29 = 84
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