Given the Following Data, Calculate the Total Product Cost Per

question 124

Multiple Choice

Given the following data, calculate the total product cost per unit under absorption costing. $\begin{array}{|l|c|}\hline \text { Direct labor } & \$ 3.50 \text { per unit } \\\hline \text { Direct materials } & \$ 1.25 \text { per unit } \\\hline \text { Overhead } & \\\hline \text { Total variable overhead } & \$ 41,400 \\\hline \text { Total fixed overhead } & \$ 150,000 \\\hline & \\\hline \text { Expected units to be produced } & 18,000 \text { units } \\\hline\end{array}$

• A)$4.75 per unit
• B)$7.05 per unit
• C)$13.08 per unit
• D)$15.38 per unit
• E)$16 per unit

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Definitions:

AVC

Average Variable Cost, which is the total variable cost divided by the quantity of output produced, representing the variable cost per unit of output.

Economies Of Scale

They refer to the cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

Pin Factory

Illustration by Adam Smith in "The Wealth of Nations" on how division of labor increases productivity, using a pin factory as an example.

Diminishing Returns

The principle stating that if one factor of production is increased while others remain constant, the overall returns will initially increase but there will come a point where the added benefits will start to decrease.