Question

XYZ Company allocates fixed overhead costs based on direct labor dollars, with an allocation rate of $5 per DL$. XYZ sells 1,000 units of product X per month at a price of $20 per unit. The variable costs are: direct materials $5/unit, direct labor $2/unit, and variable overhead $1/unit. Compute the profit margin per unit of product X Group of answer choices $10 per unit $10.75 per unit $12 per unit $13 per unit $2 per unit

Answer 1

The profit margin per unit of product X is $10 per unit.

Step-by-step explanation:

To calculate the profit margin per unit of product X, we need to subtract the total cost per unit from the selling price per unit. The total cost per unit consists of the variable costs and the allocated fixed overhead costs. The variable costs per unit are the sum of the direct materials, direct labor, and variable overhead costs, which are $5 ($5 for direct materials + $2 for direct labor + $1 for variable overhead). The allocated fixed overhead cost per unit is $5, as stated in the question. Therefore, the total cost per unit is $10 ($5 variable costs + $5 allocated fixed overhead costs). The selling price per unit is $20, so the profit margin per unit is $10 ($20 - $10). Hence, the correct answer is $10 per unit.

Answer 2

See below

Step-by-step explanation:

Given that;

Price per unit = $20

Direct labor cost = $2

Direct material cost = $5

Overhead cost = $1

Fixed overhead allocation= $5 per direct labor cost = $5 × $2 = $10

Total expenses = $2 + $5 + $1 + $10 = $18

Therefore , profit margin

= Price per unit - Total expenses

= $20 - $18

= $2