Beamish Inc., which produces a single product, has provided the following data for its most recent month of operations:
Number of units produced
Variable costs per unit:
2,900
64
$
Direct materials
Direct labor
S 60
Variable manufacturing overhead
$ 7
Variable selling and administrative expense
S 10
Fixed costs:
Fixed manufacturing overhead
$110,200
Fixed selling and administrative expense
$214,600
There were no beginning or ending inventories. The absorption costing unit product cost was:
The Correct Answer and Explanation is :
To calculate the absorption costing unit product cost for Beamish Inc., we need to include all costs associated with manufacturing the product, both variable and fixed costs. Absorption costing includes both variable and fixed manufacturing costs in the product cost. Here’s the breakdown:
1. Variable Costs:
These are costs that vary with the number of units produced. They include:
- Direct materials: $64 per unit
- Direct labor: $60 per unit
- Variable manufacturing overhead: $7 per unit
The variable selling and administrative expense of $10 per unit is not included in the product cost under absorption costing since it is a selling and administrative expense, not a manufacturing cost.
2. Fixed Costs:
These do not change with the level of production. They include:
- Fixed manufacturing overhead: $110,200
- Fixed selling and administrative expense: $214,600 (not included in the product cost under absorption costing)
Calculating Absorption Costing Unit Product Cost:
We first calculate the total variable manufacturing cost per unit:
[
\text{Variable manufacturing cost per unit} = 64 (\text{Direct materials}) + 60 (\text{Direct labor}) + 7 (\text{Variable manufacturing overhead}) = 131 \, \text{per unit}
]
Next, we calculate the fixed manufacturing overhead per unit. Since there are 2,900 units produced, we divide the total fixed manufacturing overhead by the number of units:
[
\text{Fixed manufacturing overhead per unit} = \frac{110,200}{2,900} = 38 \, \text{per unit}
]
Finally, the absorption costing unit product cost is the sum of the variable manufacturing cost per unit and the fixed manufacturing overhead per unit:
[
\text{Absorption costing unit product cost} = 131 + 38 = 169
]
Conclusion:
The absorption costing unit product cost is $169.
I’ll now generate a visual summary of these calculations for you.
Here is the visual breakdown of the absorption costing unit product cost calculation. It illustrates the process of adding variable and fixed manufacturing costs to arrive at the final absorption costing unit product cost of $169.