Waterway Industries sells its product for $70 per unit. During 2016, it produced 60000 units and sold 50000 units (there was no beginning inventory). Costs per unit are:

Direct materials $16
Direct labor $12
Variable overhead $2.

Fixed costs are:$72000 Manufacturing overhead, and $90000 selling and administrative expenses.

Cost of goods sold under absorption costing is:

$1,560,000

Explanation:

Given the following ;

Direct material cost = $16

Direct labor cost = $12

Variable overhead cost = $2.

Total unit sold = 50000

Fixed costs:

Manufacturing overhead = $72,000

Selling and administrative expenses = $90,000

Note: selling and administrative expenses isn't calculated as part of absorption costing.

Absorption costing( Full costing) includes the manufacturing overhead cost of the fixed cost of production in addition with the direct labor cost, variable overhead cost and direct material cost in calculating the cost of goods produced.

Therefore, manufacturing overhead per good = $72,000 ÷ 60,000 = $1.2

Therefore,

cost per unit = direct material cost + direct labor cost + variable overhead cost + manufacturing overhead per unit

cost per unit = $16+$12+$2+1.2 = $31.2

Absorption costing = 31.2 × 50000 = $1,560,000

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