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

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

Quizplus · Accepted Answer

Under absorption costing, the cost per unit includes direct materials, direct labor, variable overhead, and fixed overhead. Given the cost per unit is $39.75, and direct materials and labor are $18.30 and $14.20 respectively, the remaining cost per unit is for overheads. Fixed overhead per unit is $4,500,000 / 750,000 = $6.00. Thus, variable overhead per unit is $39.75 - $18.30 - $14.20 - $6.00 = $1.25. Total variable overhead is $1.25 * 750,000 = $937,500.

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