Question

Shadowlands Inc. produces venetian blinds for homes and business. They reported the following financial information for the previous period: Direct Materials 3,000 units used (purchased at $50/unit) Direct Labor 200 hrs/employee 15 employees each paid at $20/hr Production Manager Salary $6,000 Accounting Manager Salary $5,000 Factory Rent $15,000 Administration Building Rent $1,500 Factory Utilities (variable cost) $4,000 Equipment Depreciation (fixed cost) $1,500 Equipment Maintenance (variable cost) $500 Total units produced in the period 1,500 2. What is the per-unit cost of inventory produced under absorption costing ? 3. What is the per-unit cost of inventory produced under variable costing ?

Answer 1

Note :

Fixed manufacturing overhead = Production Manager Salary + Factory Rent + Equipment Depreciation

=  $6,000 + $15,000 + $1,500 = $22,500

Variable manufacturing overhead = Factory Utilities + Equipment Maintenance = $4,000 + $500 = $4,500  ;

Answer 2

Per-unit cost of inventory produced under absorption costing

Particular	Amount ($)
Direct Materials ( 3,000 * $50)	150,000
Direct Labor (200 * 15* $20)	60,000
Variable manufacturing overhead	4,500
Fixed manufacturing overhead	22,500
Total Cost	237,000
Divide by units produced in the period	1,500
Per-unit cost of inventory produced under absorption costing	$158

Answer 3

Per-unit cost of inventory produced under variable costing

Particular	Amount ($)
Direct Materials ( 3,000 * $50)	150,000
Direct Labor (200 * 15* $20)	60,000
Variable manufacturing overhead	4,500
Total Cost	214,500
Divide by units produced in the period	1,500
Per-unit cost of inventory produced under variable costing	$143