Tremble Corporation manufactures and sells one product. The following informatio

Question

Tremble Corporation manufactures and sells one product. The following information pertains to the company’s first year of operations:

Variable costs per unit: Direct materials $ 110

Fixed costs per year: Direct labor $ 990,000

Fixed manufacturing overhead $ 3,286,800

Fixed selling and administrative expenses $ 2,559,400

The company does not have any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, the company produced 39,600 units and sold 38,200 units. The company’s only product is sold for $161 per unit. Assume that the company uses an absorption costing system that assigns $25 of direct labor cost and $83 of fixed manufacturing overhead to each unit that is produced. The unit product cost under this costing system is:

Multiple Choice

$110 per unit

$218 per unit

$135 per unit

$285 per unit

Explanation / Answer

Absorption cost per unit = Per-unit Variable cost + Per-unit Fixed Overhead

    = Direct material per unit + direct labor per unit + fixed manufacturing overhead

    = $ 110 + $ 25 + $ 83 = $ 218

Hence option “ 218 per unit ” is correct answer.

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