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25 January, 11:20

Smidt Corporation has provided the following data for its two most recent years of operation:

Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials $ 9 Direct labor $ 5 Variable manufacturing overhead $ 5 Fixed manufacturing overhead per year $ 140,000 Selling and administrative expenses: Variable selling and administrative expense per unit sold $ 5 Fixed selling and administrative expense per year $ 65,000 Year 1 Year 2 Units in beginning inventory 0 3,000 Units produced during the year 10,000 7,000 Units sold during the year 7,000 6,000 Units in ending inventory 3,000 4,000

The unit product cost under absorption costing in Year 1 is closest to:

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  1. 25 January, 14:33
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    Unitary cost = $33

    Explanation:

    Giving the following information:

    Manufacturing costs:

    Variable manufacturing cost per unit produced:

    Direct materials $9

    Direct labor $5

    Variable manufacturing overhead $5

    Fixed manufacturing overhead per year $ 140,000

    Year 1:

    Units produced during the year 10,000

    Under absorption costing, the unitary product cost is calculated summing the direct material, direct labor, and total manufacturing overhead:

    First, we need to calculate the unitary fixed manufacturing overhead:

    Unitary fixed overhead = 140,000/10,000 = $14 per unit

    Unitary cost = direct material + direct labor + unitary overhead

    Unitary cost = 9 + 5 + (5 + 14) = $33
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