Under absorption costing,a company had the following unit costs when 10,000 units were produced:
$\begin{array}{ll}
\text { Direct labor } & \$ 2 \text { per unit } \
\text { Direct material } & \$ 3 \text { per unit } \
\text { Variable overhead } & \$ 4 \text { per unit } \
\cline { 2 - 2 } \text { Total variable } & \$ 9 \text { per unit } \
\text { Fixed overhead }(\$ 50,000 / 10,000 \text { units) } & \$ 5 \text { per unit } \
\text { Total production cost } & \$ 14 \text { per unit }
\end{array}$

The total production cost per unit under absorption costing if 25,000 units had been produced would be $11.

Question

Under absorption costing,a company had the following unit costs when 10,000 units were produced:
 $\begin{array}{ll}
\text { Direct labor } & \$ 2 \text { per unit } \
\text { Direct material } & \$ 3 \text { per unit } \
\text { Variable overhead } & \$ 4 \text { per unit } \
\cline { 2 - 2 } \text { Total variable } & \$ 9 \text { per unit } \
\text { Fixed overhead }(\$ 50,000 / 10,000 \text { units) } & \$ 5 \text { per unit } \
\text { Total production cost } & \$ 14 \text { per unit }
\end{array}$
 
The total production cost per unit under absorption costing if 25,000 units had been produced would be $11.

Quizplus · Accepted Answer

Under absorption costing, fixed overhead is applied to units produced. If more units are produced, the fixed overhead cost per unit will decrease.

Under Absorption Costing,a Company Had the Following Unit Costs When