Murphy Inc., which produces a single product, has provided the following data for its most recent month of operation: Number of units produced 12,700 Variable costs per unit: Direct materials $ 89 Direct labor $ 80 Variable manufacturing overhead $ 2 Variable selling and administrative expenses $ 17 Fixed costs: Fixed manufacturing overhead $ 622,300 Fixed selling and administrative expenses $ 254,000 The company had no beginning or ending inventories. Required: a. Compute the unit product cost under absorption costing. b. Compute the unit product cost under variable costing.

a. Unit Product Cost under Absorption Costing is $220.

b. Unit Product Cost under Variable Costing is $171.

Explanation:

Unit Product Cost means how much of Cost has been incurred to product a single unit of Product. We are required to compute Unit Product Cost under Two Costing Methods: Absorption Costing and Variable Costing.

Before calculating the requirement, lets differentiate between these two:

Absorption Costing

It considers Direct Material, Direct Labor, Variable Manufacturing Overhead, and Fixed Manufacturing Overhead as Product Costs and Selling & Administrative Expenses as Period Costs.

Variable Costing

This method does not Fixed Manufacturing Overhead as Product Cost and treat it as a Period Cost.

Calculations:

a. Unit Product Cost under Absorption Costing

Direct Material                                                                                  $89

Direct Labor                                                                                        80

Variable Manufacturing Overhead                                                     2

Fixed Manufacturing Overhead (622,300/12,700)                          49

Unit Product Cost                                                                          $220

b. Unit Product Cost under Variable Costing

Direct Material                                                                                  $89

Direct Labor                                                                                        80

Variable Manufacturing Overhead                                                     2

Unit Product Cost                                                                          $171

b is the correct answer