Question

Akeo Corporation manufactures and sells volleyballs. The following information relates to Akeo’s operations for last year:

                        Unit product cost under variable costing        $5.20 per unit

                        Number of units (volleyballs) produced          400,000

                        Fixed manufacturing overhead                     $260,000

                        Fixed selling and administrative expense       $180,000

Under absorption costing, what is Akeo’s unit product cost for last year?

Answer 1

Under absorption costing, all variable and fixed costs related to manufacturing are considered in cost of product and selling and distribution cost and administrative overhead is not considered as part of product costs

So, product cost under absorption costing

= Variable cost per unit under variable costing + Fixed manufacturing cost per unit

= Variable cost per unit under variable costing + (Total fixed manufacturing cvost / Number of units)

= $5.20 + ($260,000 / 400,000)

= $5.20 + $0.65

= $5.85 per unit