Question

The following cost behavior patterns describe anticipated manufacturing costs for 2013: raw material, $8.20/unit; direct labor, $11.20/unit; and manufacturing overhead, $386,400 + $9.20/unit. Required: If anticipated production for 2013 is 42,000 units, calculate the u

Answer 1

Note: The missing part of the question is "using variable costing and absorption costing. Explain the difference"

Solution

According to variable costing, the unit cost based was

= $8.20 + $11.20 + $9.20

= $28.6

According to absorption costing,

Total Manufacturing costs= Direct material + Direct labor + Overhead

= $8.20 + $11.20 + ($386,400/42,000 units) + $9.20

= $8.20 + $11.20 + $9.2 + $9.2

= $37.8

The difference between the variable costing and the absorption cost is because the product costing using variable costing method only includes variable costs.