Under Absorption Costing,a Company Had the Following Unit Costs When

question 147

Multiple Choice

Under absorption costing,a company had the following unit costs when 8,000 units were produced.
$\begin{array}{ll}\text { Direct labor } & \$ 8.50 \text { per unit } \\\text { Direct material } & \$ 9.00 \text { per unit } \\\text { Variable overhead } & \$ 6.75 \text { per unit } \\\text { Fixed overhead }(\$ 60,000 / 8,000 \text { units) } & \$ 7.50 \text { per unit } \\\quad \text { Total production cost } & \$ 31.75 \text { per unit }\end{array}$

Compute the total production cost per unit under absorption costing if 30,000 units had been produced.

• A) $31.75
• B) $27.25
• C) $26.25
• D) $24.25
• E) $17.50

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Definitions:

Consolidated Balance Sheet

A financial statement that combines the assets, liabilities, and equity of a parent company and its subsidiaries, presenting them as a single economic entity.

Cost Method

An accounting approach where investments are recorded at their original purchase cost, only adjusting for impairment or sale.

Intercompany Sales

Transactions involving the exchange of goods or services between entities within the same parent company.

Pre-tax Profit

The income that a company has earned before any taxes have been deducted from this amount, also known as earnings before tax.