Amos Rubber company manufactures tires. They reported the following information from their operations last period: Cost of Direct Materials used in production: $35,000 Cost of Direct Labor wages: $40,000 Variable Manufacturing Overhead: $30,000 Fixed Manufacturing Overhead: $75,000 Total units produced and sold: 50,000 Under absorption costing, the per-unit cost is greater than the variable per-unit cost by how much?

The per-unit cost under absorption costing is greater than the variable per-unit cost by $1.50.

Explanation:

Units costs under variable costing include only the variable manufacturing costs.

Manufacturing Costs - Variable Costing

Direct Materials used in production:   $35,000

Cost of Direct Labor wages:                $40,000

Variable Manufacturing Overhead:     $30,000

Total Costs                                           $105,000

Unit Cost = $105,000/ 50,000

                = $2.10

Units costs under absorption costing include both the variable manufacturing costs and fixed manufacturing costs.

Manufacturing Costs - Absorption Costing

Direct Materials used in production:   $35,000

Cost of Direct Labor wages:                $40,000

Variable Manufacturing Overhead:     $30,000

Fixed Manufacturing Overhead:          $75,000

Total Costs                                           $180,000

Unit Cost = $180,000/ 50,000

                = $3.60

Difference :

Unit Cost - Absorption Costing      $3.60

Less Unit Cost - Variable Costing  $2.10

Difference                                        $1.50

Conclusion :

The per-unit cost under absorption costing is greater than the variable per-unit cost by $1.50.

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