Magenta Inc.reports the following information for the current year which is its first year of operations: $\begin{array}{ll}
\text { Units produced this year } & 750,000 \text { units } \
\text { Units sold this year } & 740,000 \text { units } \
\text { Direct materials } & \$ 18.30 \text { per unit } \
\text { Direct labor } & \$ 14.20 \text { per unit } \
\text { Variable overhead } & ? \text { in total } \
\text { Fixed overhead } & \$ 4,500,000 \text { in total }
\end{array}$ If the company's cost per unit of finished goods using absorption costing is $39.75, what is total variable overhead?
A)$925,000
B)$877,500
C)$937,500.
D)$865,800
E)$5,437,500

Question

Quizplus · Accepted Answer

Absorption costing includes all manufacturing costs (fixed and variable) when calculating the cost per unit of finished goods.

Given that the cost per unit of finished goods using absorption costing is $39.75 and the direct materials cost is $18.30 per unit and the direct labor cost is $14.20 per unit, we can calculate the fixed manufacturing overhead per unit as follows:

Fixed manufacturing overhead per unit = Total fixed manufacturing overhead / Units produced = $4,500,000 / 750,000 units = $6 per unit

Thus, we have:

Cost per unit of finished goods = Direct materials cost per unit + Direct labor cost per unit + Variable overhead cost per unit + Fixed overhead cost per unit

$39.75 = $18.30 + $14.20 + Variable overhead cost per unit + $6

Solving for Variable overhead cost per unit, we get:

Variable overhead cost per unit = $1.25

To calculate the total variable overhead, we can multiply the variable overhead cost per unit by the number of units sold:

Total variable overhead = Variable overhead cost per unit x Units sold

Total variable overhead = $1.25 x 740,000 units = $937,500

Therefore, the correct answer is (C) $937,500.

Magenta Inc If the Company's Cost Per Unit of Finished Goods Using