Question

A local merchandiser purchases inventory that it subsequently sells to customers. During the month of May, the following costs (in dollars) were incurred:

Cost of inventory purchased and sold $20,000

Selling Expenses $4,000

Administrative Expenses $5,000

What was the product cost per unit if 1,000 units of inventory were purchased and sold during May?

A. $24

B. $29

C. $25

D. $20

Answer 1

Product cost includes all sorts of costs that are required to make the product. Therefore, only the cost of inventory should be considered here. Selling and administrative expenses are not needed for the making product and not to be included in product line.

Product cost = Cost of inventory

                        = $20,000

Per-unit cost = Product cost / number of units

                        = $20,000 / 1,000

                        = $20

Answer: D