Question

Brief Exercise 20-18

Burns Company incurred the following costs during the year: direct materials $21.00 per unit; direct labor $13.00 per unit; variable manufacturing overhead $16.00 per unit; variable selling and administrative costs $8.00 per unit; fixed manufacturing overhead $122,000; and fixed selling and administrative costs $11,000. Burns produced 10,167 units and sold 6000 units.

Determine the manufacturing cost per unit under (a) absorption costing and (b) variable costing. (Round answers to 2 decimal places, e.g. 52.75.)

Manufacturing cost
(a) Absorption Costing
$
(b) Variable Costing
$

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Answer 1

• All working forms part of the answer
• Since Fixed manufacturing overhead become part of the unit product manufacturing cost, lets find out per unit of fixed manufacturing cost.

A	Fixed manufacturing Overheads	$          122,000.00
B	Units produced	10,167
C = A/B	Fixed manufacturing overhead per unit	$                    12.00

• Requirement ‘a’ and ‘b’

	(a) Absorption Costing	(b) Variable Costing
Direct Material per unit	$                    21.00	$                   21.00
Direct labor cost per unit	$                    13.00	$                   13.00
Variable manufacturing Overhead per unit	$                    16.00	$                   16.00
Fixed manufacturing Overhead per unit	$                    12.00	$                          -   [does not become part of manufacturing cost of product]
Manufacturing cost per unit	$                    62.00 per unit = Answer	$                   50.00 per unit = Answer

• Notes:

>Selling & administrative cost (fixed or variable) never becomes part of ‘manufacturing’ cost, neither in Absorption Costing, now in variable costing.

>Fixed manufacturing overheads are only absorbed to unit cost under absorption costing. The same is not considered for Variable costing method.