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Absorption Costing

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Under absorption costing a company had the following per unit costs when 10,000 units were produced.

Direct Labor ................................... $2
Direct Materials............................. 3
Variable Overhad......................... 4
Total Variable Cost ................................$9
Fixed overhead ($50,000/10,000 units) 5
Total production cost per unit................ $14

Required
1- Compute the company's total production cost per unit if 25,000 units had been produced.
2- Why might a manager of a company using absorption costing produce more units than can currently be sold?

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Solution Summary

The solution provides an example of using Absorption Costing to compute production cost per unit.

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