Problem 1: A. Some Company wants to use Variable Costing. Determine the producti

Question

Problem 1: A. Some Company wants to use Variable Costing. Determine the production cost per unit under variable costing using the following information: . Direct materials.S5 per unit . Direct Labor $10 per unit Variable overhead $8 per unit Fixed overhead $150,000 Variable selling expenses $2 per unit . Fixed selling and admin, expenses $70,000 50,000 units produced .40,000 units sold $26 per unit $23 per unit $25 per unit $28 per unit o o o o B. Another Company wants to use Absorption Costing. Determine the production cost per unit under absorption (or full) costing using the following information: Direct materials $5 per unit Direct Labor $10 per unit Variable overhead S8 per unit Fixed overhead $150,000 Variable selling expenses S2 per unit Fixed selling and admin. expenses $70,000 50,000 units produced 40,000 units sold o $25 per unit o $26 per unit o $23 per unit $28 per unit

Explanation / Answer

Ans.a Option 2nd $23 per unit *Calculation: Direct material 5 Direct labor 10 Variable overhead 8 Total production cost per unit 23 Ans.b Option 1st $26 per unit *Calculation: Direct material 5 Direct labor 10 Variable overhead 8 Fixed overhead per unit 3 Total production cost per unit 26 *Fixed overhead per unit                      = Total fixed overhead / Total units produced 150000 / 50000 3 *This is the main difference between absorption costing and variable costing that absorption costing includes fixed manufacturing overhead per unit and in the case of Variable costing fixed manufacturing cost per unit is not included.

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