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23 June, 21:56

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

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  1. 24 June, 01:08
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    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.
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