Question

Trio Company reports the following information for the current year, which is its first year of operations.

Direct materials $11 per unit
Direct labor $19 per unit
Overhead costs for the year
Variable overhead $ 2 per unit
Fixed overhead $90,000 per year
Units produced this year 22,500 units
Units sold this year 16,500 units
Ending finished goods inventory in units 6,000 units

Compute the cost per unit of finished goods using 1) absorption costing and 2) variable costing.

Answer 1

Absorption costing

Full cost per unit = $36

Variable costing

marginal cost = $32

Step-by-step explanation:

Absorption costing

Absorption costing values inventories and units produced using full cost per unit.

Full cost per unit

= Direct material cost + Direct labour + variable overheads + Fixed prod overhead

Fixed overhead per unit

= 90,000/22,500

= $4 per unit

Full cost per unit = 11 + 19 +2 + 4 =$36

Variable costing method

Variable (marginal) costing methods values inventories and units produced using variable cost per unit i.e marginal cost

Marginal cost = Direct material cost + Direct labour + variable overheads

Cost per unit = 11 + 19 +2 =$32