Question

Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations: Variable costs per unit:
Manufacturing:
Direct materials $ 10
Direct labor $ 4
Variable manufacturing overhead $ 1
Variable selling and administrative $ 1
Fixed costs per year:
Fixed manufacturing overhead $ 231,000
Fixed selling and administrative $ 141,000
During the year, the company produced 21,000 units and sold 17,000 units. The selling price of the company’s product is $40 per unit. Assume that the company uses absorption costing. Compute the unit product cost.

Answer 1

Answer:

Unitary product cost= $26

Explanation:

Giving the following information:

Direct materials $ 10

Direct labor $ 4

Variable manufacturing overhead $ 1

Fixed costs per year:

Fixed manufacturing overhead $ 231,000

During the year, the company produced 21,000 units

Under the absorption costing method, the unit product coast is calculated using direct material, direct labor, and total unitary overhead.

First, we need to calculate the unitary fixed overhead:

Unitary fixed overhead= 231,000/21,000= $11

Now, we can calculate the unit product cost:

Unitary product cost= 10 + 4 + 1 + 11= $26