Gore Manufacturing incurred the following costs during the year: direct material

Question

Gore Manufacturing incurred the following costs during the year: direct materials $24 per unit; direct labor $15 per unit; variable manufacturing overhead $18 per unit; variable selling and administrative costs $8 per unit; fixed manufacturing overhead $122,000; and fixed selling and administrative costs $15,000. Gore produced 12,200 units and sold 10,000 units.

Determine the manufacturing cost per unit under (a) absorption costing and (b) variable costing.

Explanation / Answer

Hi,

Please find the answer as follows:

Absorbtion Costing = 24 (Direct Material) + 15 (Direct Labor) + 18 (Variable Manufacturing Overhead) + 122000/12200 (Fixed Manufacturing Overhead Per Unit) = $67 per unit

Variable Costing = 24 (Direct Material) + 15 (Direct Labor) + 18 (Variable Manufacturing Overhead) = $57 per unit

Notes:

1) Selling and Administrative expenses are not relevant in the calculation of manufacturing cost per unit.

2) We use the number of units manufactured to calculate fixed cost per unit.

Thanks.

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