Question

4-2

Diego Company manufactures one product that is sold for $78 per unit in two geographic regions—the East and West regions. The following information pertains to the company’s first year of operations in which it produced 49,000 units and sold 44,000 units.

Variable costs per unit:
Manufacturing:
Direct materials	$	28
Direct labor	$	14
Variable manufacturing overhead	$	4
Variable selling and administrative	$	6
Fixed costs per year:
Fixed manufacturing overhead	$	686,000
Fixed selling and administrative expense	$	510,000

The company sold 32,000 units in the East region and 12,000 units in the West region. It determined that $230,000 of its fixed selling and administrative expense is traceable to the West region, $180,000 is traceable to the East region, and the remaining $100,000 is a common fixed expense. The company will continue to incur the total amount of its fixed manufacturing overhead costs as long as it continues to produce any amount of its only product.

What is the unit product cost under absorption costing?

Answer 1

• Requirement: Unit product cost under Absorption Costing

	Absorption Costing
Direct Material per unit	$                    28.00
Direct labor cost per unit	$                    14.00
Variable manufacturing Overhead per unit	$                       4.00
Fixed manufacturing Overhead per unit	$                    14.00 [$686000 / 49000 units produced]
Product cost per unit	$                    60.00

• Correct Answer = $ 60 per unit is the unit product cost under Absorption costing.