Olds Inc., which produces a single product, has provided the following data for its most recent month of operations: There were no beginning or ending inventories. The absorption costing unit product cost was:
A)$97
B)$130
C)$99
D)$207

Question

Olds Inc., which produces a single product, has provided the following data for its most recent month of operations:  There were no beginning or ending inventories. The absorption costing unit product cost was:
A)$97 
B)$130 
C)$99 
D)$207

Quizplus · Accepted Answer

Absorption costing includes all manufacturing costs (direct materials, direct labor, and both fixed and variable manufacturing overhead) in the cost of a unit of product. 
Using the absorption costing method, the product cost can be computed as follows:

Direct materials per unit = $40 
Direct labor per unit = $25 
Variable manufacturing overhead per unit = $18 
Fixed manufacturing overhead per unit = ($240,000/30,000 units) = $8 
Total cost per unit = $40 + $25 + $18 + $8 = $91 
Therefore, the absorption costing unit product cost is $130 ($91 + 30%*$91).

Olds Inc, Which Produces a Single Product, Has Provided the Following