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    Variable and Absorption Costs

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    Sharpens Incorporated produces knife sets for use in commercial kitchens. They sell for $400.00 each.

    Selected data for the company's operations last year follow below.

    Units in beginning inventory 0
    Units produced 3000
    Units sold 2500
    Units in ending inventory 500

    Variable cost per unit
    Direct materials $120.00
    Direct labor 80
    Variable manufacturing overhead 40
    Variable selling and administrative 20

    Fixed costs
    Fixed manufacturing overhead $ 300,000
    Fixed selling and administrative $ 200,000

    a. Assume that the company uses variable costing, compute the unit cost for one knife set? (Show all work)
    b. Assuming that the company uses absorption costing, compute the unit cost for one knife set. (Please show all work so I am able to learn this stuff)

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    https://brainmass.com/business/accounting/variable-absorption-costs-518055

    Solution Preview

    Dear student,

    Variable cost per unit is $340, while absorption cost per unit is $360. However, please take a look at the attached Excel for a full breakdown of the solutions.

    1 Data used in the problem
    Selling price $400
    Units in beginning inventory 0
    Units produced 3000
    Units sold 2500
    Units in ending inventory 500
    Variable costs per unit:
    Direct materials $120
    Direct labor $80
    Variable manufacturing overhead $40
    Variable selling and administrative $20
    Fixed manufacturing overhead $300,000
    Fixed selling and administrative $200,000

    2 Statement of unit cost analysis under Variable and absorption costing.
    Variable costing Absorption
    Direct material $120 $120
    Direct labour $80 $80
    Variable manufacturing overhead $40 $40
    Fixed Factory Overhead ...

    Solution Summary

    The expert examines variable and absorption costs for company's operations.

    $2.19

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