Question

Diego Company manufactures one product that is sold for $78 per unit. The following information pertains to the company’s first year of operations in which it produced 60,000 units and sold 55,000 units. Variable costs per unit: Manufacturing: Direct materials $ 28 Direct labour $ 12 Variable manufacturing overhead $ 2 Variable selling and administrative $ 3 Fixed costs per year: Fixed manufacturing overhead $ 1,260,000 Fixed selling and administrative expenses $ 654,000 Required: 1. What is the unit product cost under variable costing?

Answer 1

Direct materials = $28

Direct labour = $12

Variable manufacturing overhead = $2

Variable selling and administrative = $3

Fixed manufacturing overhead = $1,260,000

Fixed selling and administrative expenses = $654,000

Unit product cost under variable costing = Direct materials + Direct labour + Variable manufacturing overhead

= 28 + 12 + 2

= $42

Variable manufacturing overhead, Variable selling and administrative, Fixed manufacturing overhead and Fixed selling and administrative expenses are considered as period costs under variable costing.