Question

Assume a company had the following production costs: Direct labor $ 2 per unit Direct material $ 3 per unit Variable overhead $ 4 per unit Total variable $ 9 per unit Fixed overhead ($50,000/10,000 units) $ 5 per unit Total production cost $ 14 per unit Under absorption costing, the total product cost per unit when 4,000 units are produced would be $22.50. True or False True False

Answer 1

Answer:

Total production cost $ 14 per unit  Under absorption costing True

The total product cost per unit when 4,000 units are produced would be $22.50  False

Explanation:

Direct labor $ 2 per unit

Direct material $ 3 per unit

Variable overhead $ 4 per unit

Total variable $ 9 per unit

Fixed overhead ($50,000/10,000 units) $ 5 per unit

Total production cost $ 14

Production Costs involve the fixed costs under absorption Costing. So the total Product cost under absorption costing is $ 14.

When 4,000 units are produced the production costs are as follows

Absorption Costing: 4,000 * 14= $ 56,000

Variable Costing : 4000 * 9= $ 36,000

So the second statement is false.