Question

Cool Sky reports the following costing data on its product for its first year of operations. During this first year, the company produced 40,000 units and sold 32,000 units at a price of $110 per unit. Manufacturing costs Direct materials per unit $ 42 Direct labor per unit $ 16 Variable overhead per unit $ 5 Fixed overhead for the year $ 360,000 Selling and administrative costs Variable selling and administrative cost per unit $ 10 Fixed selling and administrative cost per year $ 115,000 1a. Assume the company uses absorption costing. Determine its product cost per unit.

Answer 1

Answer:

Cool Sky

The product cost per unit under absorption costing is:

= $7.20

Explanation:

a) Data and Calculations:

First year production units = 40,000

First year sales units = 32,000

Ending inventory = 8,000 (40,000 - 32,000)

Selling price per unit = $110

Sales revenue = $3,520,000 (32,000 * $110)

Manufacturing costs

Direct materials per unit $ 42

Direct labor per unit $ 16

Variable overhead per unit $ 5

Fixed overhead for the year $ 360,000

Selling and administrative costs:

Variable selling and administrative cost per unit $ 10

Fixed selling and administrative cost per year $ 115,000

Production Cost per Unit under Absorption Costing:

Manufacturing costs:            Unit      Total

Direct materials per unit      $ 42

Direct labor per unit             $ 16

Variable overhead per unit   $ 5

Total variable cost per  unit $63  $2,520,000

Fixed overhead for the year           $ 360,000

Total production cost for 40,000 $2,880,000

Unit product cost = $7.20 ($2,880,000/40,000)