Question

Computing absorption cost per unit and variable cost per unit

Adamson, Inc. has the following cost data for Product X:

Direct materials $ 41 per unit Direct labor 57 per unit Variable manufacturing overhead 7 per unit Fixed manufacturing overhead 20,000 per year

Calculate the unit product cost using absorption costing and variable costing when production is 2,000 units, 2,500 units, and 5,000 units.

Short answer

Answer

• Total unit product cost under absorption costing is $115, $113, $109 for production 2,000, 2,500, 5,000 respectively.
• Total unit product cost under variable costing is $105, $105, $105 for production 2,000, 2,500, 5,000 respectively.

Step-by-step solution

Calculation of unit product cost using absorption costing

Particulars	2,000 Units	2,500 Units	5,000 Units
Direct material	$41	$41	$41
Direct labor	$57	$57	$57
Variable manufacturing overhead	$7	$7	$7
Fixed manufacturing overhead	$20,000/2,000 =$10	$20,000/2,500 =$8	$20,000/5,000 =$4
Total unit product cost	$115	$113	$109

Calculation of unit product cost using variable costing

Particulars	2,000 Units	2,500 Units	5,000 Units
Direct material	$41	$41	$41
Direct labor	$57	$57	$57
Variable manufacturing overhead	$7	$7	$7
Total unit product cost	$105	$105	$105