Question

2. NEIU Company has no beginning and ending inventories, and reports the following information for its only product: Direct materials used $125,000 Direct labor $100,000 Fixed indirect manufacturing $75,000 Variable indirect manufacturing $25,000 Variable selling and administrative $50,000 Fixed selling and administrative $25,000 Units produced and sold 25,000 NEIU Company uses the absorption approach to prepare the income statement. What is the product cost per unit

Answer 1

Product cost per unit = $13

Step-by-step explanation:

Absorption costing values units of inventory and production using full cost per unit. Full cost per unit includes variable cost and a portion of fixed production overheads. The fixed production overhead are charged to cost units using predetermined overhead absorption rate.

The full cost per unit = D.mat cost + D.labour cost + Variable overheads+ Fixed overheads.

Total full absorption cost = 125,000 + 100,000 + 75,000 + 25,000=325,000

Full cost per unit = Total full absorption cost/Number of units

= 325,000/25,000 =$13

Note that we excluded non- production cost like selling and administrative from the computation because they are not related to production

Product cost per unit = $13