Ross Corporation produces a single product. The company has direct materials costs of $8 per unit, direct labor costs of $6 per unit, and manufacturing overhead of $10 per unit. Sixty percent of the manufacturing overhead is for fixed costs. In addition, variable selling and administrative expenses are $2 per unit, and fixed selling and administrative expenses are $3 per unit at the current activity level. Assume that direct labor is a variable cost.Under variable costing, the unit product cost is:
A) $24 per unit
B) $20 per unit
C) $18 per unit
D) $21 per unit

Question

Quizplus · Accepted Answer

Variable costing includes all variable manufacturing costs: direct materials, direct labor, and variable manufacturing overhead. Here, direct materials cost $8, direct labor costs $6, and 60% of the $10 manufacturing overhead is fixed, leaving 40% or $4 as variable. Thus, the variable cost per unit is $8 (materials) + $6 (labor) + $4 (variable overhead) = $18. Fixed manufacturing overhead and both variable and fixed selling and administrative expenses are not included in the unit product cost under variable costing.

Ross Corporation Produces a Single Product