Arizona Company provided the following information regarding its only product--skateboards. $\begin{array}{lr}
\text { Direct materials used } & \$ 350,000 \
\text { Direct labor } & 170,000 \
\text { Fixed overhead } & 80,000 \
\text { Variable overhead } & 20,000 \
\text { Variable selling and administrative } & 90,000 \\
\text { Units produced and sold } & 40,000
\end{array}$ The difference in manufacturing cost per unit, if the absorption approach is used in place of the contribution approach, is _____.
A)cost per unit increases by $2
B)cost per unit decreases by $2
C)cost per unit increases by $0.75
D)cost per unit decreases by $0.75

Question

Quizplus · Accepted Answer

Under absorption costing, fixed overhead is included in the product cost. Fixed overhead per unit is $80,000 / 40,000 units = $2. This increases the cost per unit by $2 compared to the contribution approach, which does not include fixed overhead in product cost.

Arizona Company Provided the Following Information Regarding Its Only Product--Skateboards