Question

Madrid Corporation has compiled the following information from the accounting system for the one product it sells:

Sales price	$	610	per unit
Fixed costs (for the month)
Marketing and administrative	$	153,400
Manufacturing overhead	$	153,400
Variable costs (per unit)
Marketing and administrative	$	26
Direct materials	$	170
Manufacturing overhead	$	32
Direct labor	$	120
Units produced and sold (for the month)		2,600

24.

Required information

Required:

a. Determine the variable manufacturing cost per unit.

b. Determine the variable cost per unit.

c. Determine the full absorption cost per unit.

d. Determine the full cost per unit.

Answer 1

Solution:
a.	Variable manufacturing cost per unit	$322
Working Notes:
Notes:	Variable manufacturing cost is the cost per unit changes , when number of manufactured is changes , so it includes Manufacturing Overhead, Direct Labor & Direct Materials but does not is Marketing and administrative per unit as it does not get effected for manufacturing a product.
	Variable manufacturing cost per unit
	= Direct materials per unit + Manufacturing Overhead per unit + Direct Labor cost per unit
	=$170 + $32 + $120
	=$322
b.	Variable cost per unit	$348
Working Notes:
Notes:	Variable cost per unit is the total variable cost per unit incurred by the company for final product which will include addition to variable manufacturing cost is the Variable Marketing & administrative cost per unit which will be incurred in variable for each unit produced and sold.
	Variable cost per unit
	=Variable manufacturing cost per unit + Marketing and administrative variable cost per unit
	= Direct materials per unit + Manufacturing Overhead per unit + Direct Labor cost per unit + Marketing and administrative variable cost per unit
	=$170 + $32 + $120 + $26
	=$348
c.	Full absorption cost per unit	$381
Working Notes:
Notes:	Under absorption costing total cost incurred for manufacturing are allocated to total units manufactured units during the period , hence under absorption costing , not variable manufacturing cost are allocated to units manufactured but also fixed manufacturing cost are also allocated to units manufactured, based on total units manufactured during the period.
	Full absorption cost per unit
	=Variable manufacturing cost per unit + (Fixed Manufacturing overhead/Units produced and sold)
	=$322 + ($153,400/2600
	=$322 + $59
	=$381
d.
	Full cost per unit	$466
Working Notes:
Notes:	For computation of Full cost per unit , we have to get total cost incurred per unit which will include manufacturing & marketing and administrative cost variable as well as fixed costs , as all are the cost incurred for the unit produced and sold. And for computation of Full cost per unit = We will take all variable cost per unit as it is but the fixed costs will be divided by total units produced and sold during the month to get Full cost per unit
	Full cost per unit = Variable cost per unit + (Fixed Marketing and administrative/Units produced & sold) + (Fixed Manufacturing overhead/Units produced & sold)
	Full Cost per unit = $348 + (153,400/2600) + (153400/2600)
	Full Cost per unit = $348 + $59 + $59
	Full Cost per unit = $466
Please feel free to ask if anything about above solution in comment section of the question.