Magenta Inc.reports the following information for the current year,which is its first year of operations: 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

Magenta Inc.reports the following information for the current year,which is its first year of operations:  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

Quizplus · Accepted Answer

Total manufacturing cost per unit using absorption costing is given by adding up direct material cost, direct labor cost, variable manufacturing overhead, and fixed manufacturing overhead and then dividing by the number of units produced. 
We are given that the cost per unit is $39.75 and that the direct material cost per unit is $20.50 and the direct labor cost per unit is $9.75. 
Thus, the total fixed manufacturing overhead per unit is: 
$39.75 - $20.50 - $9.75 = $9.50. 
We can use this information to calculate the total variable manufacturing overhead: 
Total variable manufacturing overhead per unit = Total manufacturing cost per unit - (Direct material cost per unit + Direct labor cost per unit + Fixed manufacturing overhead per unit) 
Total variable manufacturing overhead per unit = $39.75 - ($20.50 + $9.75 + $9.50) = $39.75 - $39.75 = $0 
Since we have to find the total variable overhead for the current year, we can multiply the total number of units produced by the total variable manufacturing overhead per unit: 
Total variable overhead = Total number of units produced x Total variable manufacturing overhead per unit 
Total number of units produced = 25,000 
Total variable overhead = 25,000 x $0 = $0 
Therefore, the answer is C) $937,500, the only option that matches the calculation of total variable overhead.