Mullee corporation produces a single product and has the following cost structure: number of units produced each year 7,000 variable costs per unit: direct materials $ 51 direct labor $ 12 variable manufacturing overhead $ 2 variable selling and administrative expense $ 5 fixed costs per year: fixed manufacturing overhead $ 441,000 fixed selling and administrative expense $ 112,000 the absorption costing unit product cost is:

unit Cost        128

Explanation:

For absorption costing the fixed manufacturing overhead will be capitalize through finished goods inventory along with the variable cost.

To calculate hte fixed cost, we will divide our expected fixed manufacturing cost over the production.

441,000 fixed manufacturing /7,000 units = $ 63 fixed per unit

Now, we add together all the cost component:

Direct Materials 51

Labor                 12

Variable MO       2

Fixed MO          63

Unit Cost        128

This will be the unit cost under absorption cost.

Notice the S&A expenses are not capitalize. Those are expenses for the period.

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