Question

Exercise 6-1 (Algo) Variable and Absorption Costing Unit Product Costs [LO6-1]

Ida Company produces a handcrafted musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $868. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		12,000
Units sold		9,000
Units in ending inventory		3,000
Variable costs per unit:
Direct materials	$	270
Direct labor	$	330
Variable manufacturing overhead	$	62
Variable selling and administrative	$	24
Fixed costs:
Fixed manufacturing overhead	$	790,000
Fixed selling and administrative	$	630,000

Required:

1. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

2. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

Answer 1

a. Computation of unit product cost by using absorption costing:

	Particular	Per unit cost
a	Direct material	$270
b	Direct labor	$330
c	Variable manufacturing overhead	$62
d	Fixed manufacturing overhead ($790,000 / 12,000 units)	$65.83
e (a+b+c+d)	Unit product cost by using absorption costing	$727.83

b. Computation of unit product cost by using Variable costing

	Particular	Amount
a	Direct material	$270
b	Direct labor	$330
c	Variable manufacturing overhead	$62
d (a+b+c)	Variable costing unit product cost	$662