Under Absorption Costing, a Company Had the Following Unit Costs

question 6

Multiple Choice

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

---

Definitions:

Inflation Effects

The impact of the general increase in prices and fall in the purchasing value of money on financial instruments and investments.

Incremental Cash Flows

The additional cash flow a business receives from taking on a new project, used in capital budgeting to analyze the profitability of an investment or project.

Company's Normal Business

Refers to the core activities and operations that a company engages in on a day-to-day basis to generate revenue and profit.

Undertaken

To commit oneself to a task or obligation.