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product costs under absorption vs variable costing

Your CFO attended an industry trade show and looked forward to sitting through one of the seminars offered that was titled "Why is it so important to know your product's costs?" Unfortunately, she missed this seminar. This is a very important topic that you plan to discuss with her yourself.

Prepare notes for your meeting with the CFO that includes the following:

How will the components of unit product costs be different if she uses absorption costing versus variable costing? Include your calculations.

Using the following company data, determine unit product costs under absorption and variable costing, and show your calculations:

Planned units produced in the year
10,000

Direct labor/unit
$200

Direct material/unit
$2,000

Variable manufacturing overhead/unit
$400

Variable SG&A/unit
$200

Fixed manufacturing overhead/year
$2,000,000

Fixed SG&A
$500,000

Solution Summary

See my computations in the attached excel sheet. Response shows which costs are excluded from the computations but do not have an in-depth discussion about product vs. nonproduct costs.

$2.19