The Ozarks Company manufactures and sells a single product. The following costs

Question

The Ozarks Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operation:
Variable cost per unit:
Manufacturing:
Direct materials $18
Direct Labor $ 4
Variable manufacturing overhead $ 6
Variable selling and administrative $ 6
Fixed costs per year:
Fixed manufacturing overhead $ 200,000
Fixed selling and administrative expenses $100,000

During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the company’s product is $50 per unit.

Compute the company’s unit product cost under the variable costing method.

Explanation / Answer

Variable Costing Unit Product Cost Direct material                  $18 Direct Labor 4 Variable manufacturing overhead 6 Variable costing unit product cost $28 Under variable costing, only those manufacturing costs that vary with output are treated as product costs. This would usually includes direct materials, direct labor, and the variable portion of manufacturing overhead. Fixed manufacturing overhead is not treated as a product cost under this method.Fixed manufacturing overhead costs are considered to be period costs.

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