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

question 104

Multiple Choice

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

Compute the total production cost per unit under variable costing if 20,000 units had been produced.

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

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Definitions:

Marginal Cost

The increase in total cost that arises from an extra unit of production, pivotal for decision-making in production processes.

Diminishing Returns

A principle stating that as more of a variable input is combined with a fixed input, the incremental gains in output will eventually decrease.

Increasing Returns

This refers to a scenario in economics where, as the quantity of input increases, the rate of output increases at a faster rate, leading to economies of scale.

Long-Run Total Cost

The aggregate cost of production when all factors of production are variable and the scale of operation can change.