Bryon Catering produces box lunches,which it sells for $20 each.During the current month,Seattle produced 2,800 meals,but only sold 2,700 meals.The variable cost per meal was $12 and the sales commissions per meal were $1.Total fixed manufacturing costs were $1,400 and total fixed marketing and administrative costs were $1,200.What is the product cost per meal under absorption costing?
A)$14.00
B)$12.50
C)$20.50
D)$12.00

Question

Quizplus · Accepted Answer

Under absorption costing, both variable and fixed manufacturing costs are allocated to each unit produced. The product cost per meal can be calculated using the following formula:

Product cost per meal = (Variable cost per meal + Fixed manufacturing cost per meal) / Number of meals produced

Variable cost per meal = $12 
Fixed manufacturing cost per meal = Total fixed manufacturing costs / Number of meals produced = $1,400 / 2,800 = $0.50 
Number of meals produced = 2,800

Product cost per meal = ($12 + $0.50) / 2,800 = $4.25

Therefore, the product cost per meal under absorption costing is $4.25. Adding the sales commission of $1, the total cost per meal is $5.25. With a selling price of $20, the gross profit per meal is $14.75. Out of this, $1,200 of fixed marketing and administrative costs need to be covered, leaving a net profit of $13.55 per meal sold. But since only 2,700 meals were sold, some fixed costs are not covered, which will decrease the net profit.

Bryon Catering Produces Box Lunches,which It Sells for $20 Each