Ralph Corporation has computed the following unit costs for the year just ended: $\begin{array} { | l | c | }
\hline \text { Direct material used } & \$ 21 \
\hline \text { Direct labour } & 27 \
\hline \text { Variable manufacturing overhead } & 31 \
\hline \text { Fixed manufacturing overhead } & 33 \
\hline \text { Variable selling and administrative cost } & 15 \
\hline \text { Fixed selling and administrative cost } & 37 \
\hline
\end{array}$ Under absorption costing, each unit of the company's inventory would be carried at:
A)$46.
B)$52.
C)$112.
D)$127.
E)164.

Question

Ralph Corporation has computed the following unit costs for the year just ended: $\begin{array} { | l | c | } 
\hline \text { Direct material used } & \$ 21 \
\hline \text { Direct labour } & 27 \
\hline \text { Variable manufacturing overhead } & 31 \
\hline \text { Fixed manufacturing overhead } & 33 \
\hline \text { Variable selling and administrative cost } & 15 \
\hline \text { Fixed selling and administrative cost } & 37 \
\hline
\end{array}$ Under absorption costing, each unit of the company's inventory would be carried at:
A)$46.
B)$52.
C)$112.
D)$127.
E)164.

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs, both variable and fixed, are included in the cost of inventory. Therefore, the total unit cost of inventory is:

Direct material used + Direct labour + Variable manufacturing overhead + Fixed manufacturing overhead
= $21 + $27 + $31 + $33
= $112

Option C is the unit cost for each unit of inventory.

Ralph Corporation Has Computed the Following Unit Costs for the Year