Question

Variable manufacturing costs are $150 per unit and fixed manufacturing costs are $75,000. Sales are estimated to be 6,000 units. How much would absorption costing income from operations differ between a plan to produce 6,000 units and a plan to produce 7,500 units?

Answer 1

If 7,500 units are produced, income will increase by $2.5 per unit

Step-by-step explanation:

Giving the following information:

Variable manufacturing costs are $150 per unit and fixed manufacturing costs are $75,000.

We need to determine the difference in income if 7,500 units are produced instead of 6,000.

The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.

The difference is in the unitary fixed manufacturing overhead.

For 6,000 units:

unitary fixed manufacturing overhead= 75,000/6,000= $12.5

For 7,500 units:

unitary fixed manufacturing overhead= 75,000/7,500= $10

If 7,500 units are produced, income will increase by $2.5 per unit