Question

If variable manufacturing costs are $18 per unit and total fixed manufacturing costs are $318,500, what is the manufacturing cost per unit if:

a. 4,900 units are manufactured and the company uses the variable costing concept?$
b. 6,500 units are manufactured and the company uses the variable costing concept?$
c. 4,900 units are manufactured and the company uses the absorption costing concept?$
d. 6,500 units are manufactured and the company uses the absorption costing concept?$

Answer 1

The manufacturing cost per unit using variable costing is $18 regardless of the number of units. With absorption costing, it is $83 per unit for 4,900 units and $67 per unit for 6,500 units, as the fixed cost is spread over more units.

Step-by-step explanation:

The question deals with the concepts of variable costing and absorption costing in determining the manufacturing cost per unit under different production levels. Using the variable costing concept, the manufacturing cost per unit includes only the variable costs. Using the absorption costing concept, the manufacturing cost per unit includes both variable and fixed costs allocated over the units produced.

Here are the calculations:

a. Variable costing with 4,900 units:

Manufacturing cost per unit = Variable manufacturing cost per unit = $18

b. Variable costing with 6,500 units:

Manufacturing cost per unit = Variable manufacturing cost per unit = $18

c. Absorption costing with 4,900 units:

Manufacturing cost per unit = ($318,500 / 4,900 units) + $18 variable cost per unit
= ($65 per unit) + $18
= $83 per unit

d. Absorption costing with 6,500 units:

Manufacturing cost per unit = ($318,500 / 6,500 units) + $18 variable cost per unit
= ($49 per unit) + $18
= $67 per unit