Question

Smidt Corporation has provided the following data for its two most recent years of operation: Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials $ 9 Direct labor $ 5 Variable manufacturing overhead $ 5 Fixed manufacturing overhead per year $ 140,000 Selling and administrative expenses: Variable selling and administrative expense per unit sold $ 5 Fixed selling and administrative expense per year $ 65,000 Year 1 Year 2 Units in beginning inventory 0 3,000 Units produced during the year 10,000 7,000 Units sold during the year 7,000 6,000 Units in ending inventory 3,000 4,000 The unit product cost under variable costing in Year 1 is closest to:

Answer 1

Computation of Unit Product Cost
	Variable Costing
Direct Meterial	$                      9.00
Direct Labour	$                      5.00
Variable Manufactoring Overhead	$                      5.00
Unit Product Cost	$                   19.00

Notice that the fixed manufacturing cost has not been included while computing the cost of one unit under variable costing system.

Selling and administrative expenses (both variable and fixed) are not relevant for the computation of unit product cost.