University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

494

Pages:

2
Author:

stud_ice13

To compute the unit product cost under both absorption and variable costing, let’s break down the required information and the calculations for each costing method. Given Information From the example in Exhibit 19.2: 1. 2. 3. 4. 5. Direct Materials Cost per Unit: $4 Direct Labor Cost per Unit: $8 Variable Overhead Cost per Unit: $3 Total Fixed Overhead Cost: $600,000 Units Produced: 60,000 units Step-by-Step Solution 1. Absorption Costing Method In absorption costing, fixed overhead costs are included in product costs. Thus, we add up all variable costs and allocate a portion of the fixed overhead to each unit. • • • • Direct Materials per Unit: $4 Direct Labor per Unit: $8 Variable Overhead per Unit: $3 Fixed Overhead per Unit: Fixed Overhead per Unit=Total Fixed OverheadUnits Produced=600,00060, 000=10 • Total Product Cost per Unit (Absorption Costing): 4+8+3+10=254 + 8 + 3 + 10 = 254+8+3+10=25 So, the total product cost per unit under absorption costing is $25. 2. Variable Costing Method In variable costing, fixed overhead is treated as a period cost (expensed in the period incurred rather than allocated per unit). Only direct materials, direct labor, and variable overhead are included in product costs. • • • • Direct Materials per Unit: $4 Direct Labor per Unit: $8 Variable Overhead per Unit: $3 Total Product Cost per Unit (Variable Costing): 4+8+3=154 + 8 + 3 = 154+8+3=15 So, the total product cost per unit under variable costing is $15. Summary of Unit Costs: • • Absorption Costing: $25 per unit Variable Costing: $15 per unit In this example, the primary difference between the two methods is the inclusion of fixed overhead costs in absorption costing as part of the unit cost.