Question

Vijay Company reports the following information regarding its production costs. Compute its product cost per unit under absorption costing.

Direct material	\(10 per unit
Direct labor	\)20 per unit
Overhead costs for the year
Variable overhead	\(10 per unit
Fixed overhead	\)160,000
Units produced	20,000 units

Refer to Vijay Company’s data in QS 19-1. Compute its product cost per unit under absorption costing

Short answer

The product cost per unit under the absorption costing is $48.

Step-by-step solution

Meaning of Direct material

Direct material means the raw material used by the company directly in the manufacturing process to produce a final product, which the company can sell in the market. It is a part of the current asset on its balance sheet.

Calculation of product cost per unit under absorption costing.

Particulars	Amount ($)
Direct material (20,000 x $10)	200,000
Add: Direct labor (20,000 x $20)	400,000
Add: Variable overhead (20,000 x $10)	200,000
Add: Fixed overhead	160,000
Total cost of product	960,000

$\begin{array}{rcl}\mathbf{Product}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{per}\mathbf{}\mathbf{unit}& \mathbf{=}& \frac{\mathbf{Total}\mathbf{}\mathbf{product}\mathbf{}\mathbf{cost}}{\mathbf{Units}\mathbf{}\mathbf{produced}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{960}\mathbf{,}\mathbf{000}}{\mathbf{20}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{48}\end{array}$