Cloudy Company reports the following information for the current year: $\begin{array}{ll}
\text { Units produced this year } & 51,000 \text { units } \
\text { Units sold this year } & 53,000 \text { units } \
\text { Direct materials } & \$ 6 \text { per unit } \
\text { Direct labor } & \$ 3 \text { per unit } \
\text { Variable overhead } & \$ 255,000 \text { in total } \
\text { Fixed overhead } & ? \text { in total }
\end{array}$ If the company's cost per unit of finished goods using absorption costing is $18, what is total fixed overhead?
A)$204,000
B)$212,000
C)$213,690
D)$222,070
E)$459,000

Question

Quizplus · Accepted Answer

Under absorption costing, the cost per unit includes direct materials, direct labor, variable overhead, and fixed overhead. Given that the cost per unit is $18, and direct materials and direct labor per unit are $6 and $3 respectively, the remaining $9 per unit must cover both variable and fixed overhead. The variable overhead per unit is $255,000 / 51,000 units = $5. Therefore, the fixed overhead per unit is $9 - $5 = $4. The total fixed overhead is $4 * 51,000 units = $204,000.

Cloudy Company Reports the Following Information for the Current Year