Question

Hayes Inc. provided the following information for the current year:

Beginning inventory		180	units
Units produced		830	units
Units sold		876	units
Selling price	$	230	/unit
Direct materials	$	43	/unit
Direct labor	$	24	/unit
Variable manufacturing overhead	$	23	/unit
Fixed manufacturing overhead	$	33,200	/yr
Variable selling/administrative costs	$	16	/unit
Fixed selling/administrative costs	$	23,500	/yr

What is the unit product cost for the year using variable costing?

Multiple Choice

• $130

• $90

• $106

• $168

Answer 1

• Correct Answer = Option #2: $ 90

Unit product Cost	Variable costing
Direct Material	$43.00
Direct Labor	$24.00
Variable factory overhead	$23.00
Fixed factory overhead	$0.00
Total unit product cost	$90.00

• Fixed factory/manufacturing overhead are not part of product cost under ‘variable costing’
• Selling & Admin Expenses (Fixed or variable) do not form part of product cost whether variable costing is in used or absorption costing.