use the following information Obama Company sells its produc

use the following information: Obama Company sells its product for $25 per unit. During 2016, it produced 20,000 units and sold 15,000 units (there was no beginning inventory). Costs per unit are: direct materials $5, direct labour $4, and variable overhead $3. Fixed costs are: $300,000 manufacturing overhead, and $50,000 selling and administrative expenses. The per unit manufacturing cost under absorption costing is:

Solution

Facts given amt in $ Direct Materials 5 Direct Labour 4 Varible overhead 3 manufacturing overhead 300000 manufacturing overhead per unit 15 no.of.units produced 20000 no.of.units sold 15000 Solution Manufacturing Cost per Unit D.materials 5 D.labour 4 var.overhead 3 manufacturing OH per unit 15 TOTAL 27 So as per absorption costing , manufacturing cost per unit is $27. REASON FOR THE ANSWER In Absorption Costing, Manufacturing cost includes Direct materials, Direct labour and both variable OH and manufacturing fixed OH It doesn’t include selling OH as it doesn’t form parts of cost.